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FORM 20-F
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
GOLD RESERVE INC.
(Exact name of registrant as specified in its charter)
Yukon Territory, Canada
(Jurisdiction of incorporation)
1-8372
(Commission file number)
926 West Sprague Avenue
Suite 200
Spokane, Washington 99201
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Class A common shares, no par value per share
(Title of each class)
The Toronto Stock Exchange ("TSE")
U.S. Over the Counter Market ("OTC")
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act: None
The total number of the registrant's shares outstanding as of December 31,
2002:
Class A common shares, no par value per share: 22,702,071
Equity Units, no par value per share: 790,705
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period as the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X]
Registrant elected to follow financial statement Item 17.
TABLE OF CONTENTS
PART I
GENERAL INFORMATION
Forward-Looking Statements
Reserve Estimates
Currency
Glossary
Item 1. Identity of Directors, Senior Management and Advisors Not
Applicable
Item 2. Offer Statistics and Expected Timetable Not Applicable
Item 3. Key Information
Selected Financial Data
Dividends
Risk Factors
Item 4. Information on the Company
History and Development of the Company
Description of PropertY
Venezuelan Mining, Environment and Other Matters
Item 5. Operating and Financial Review and Prospects
Overview
Significant Accounting Policies
Results of Operations
Liquidity and Capital Resources
Item 6. Directors and Senior Management and Employees
Compensation of Directors and Officers
Board Practices
Item 7. Major Shareholders and Related Party Transactions
Control of Registrant
Related Party Transactions
Item 8. Financial Information
Legal Proceedings
Significant Changes
Item 9. The Offer and Listing
Offer and Listing details
Item 10. Additional Information
Memorandum and Articles of Association
Exchange Controls and Other Limitations Affecting Security Holders
Taxation
Item 11. Quantitative and Qualitative Disclosures about Market Risk
Item 12. Description of Securities Other Than Equity Securities - Not
applicable
PART II
Item 13. Defaults, Dividends Arrearages and Delinquencies - None
Item 14. Material Modifications to Rights of Security Holders and Use of
Proceeds None
Item 15. Controls and Procedures
Item 16. Not Applicable
PART III
Item 17. Financial Statements
Managements Report
Report of Independent Accountants
ITEM 18. Financial Statements Not Applicable
ITEM 19. Financial Statements and Exhibits
Index to Consolidated Financial Statements
Exhibits. The following exhibits are filed as part of this report.
Signatures
Glossary of Significant Terms
Exhibit 4.0 Change Of Control Agreement
Exhibit 10.0 Consent of Independent Accountants
Exhibit 10.1 Consent of Behre Dolbear & Company, Inc.
Exhibit 99.0 Chief Executive Officers Section 906 Certification
Exhibit 99.1 Chief Financial Officers Section 906 Certification
Chief Executive Officers Certification
Chief Financial Officers Certification
PART I
GENERAL INFORMATION
Forward-Looking Statements
The information presented or incorporated by reference in this Annual Report
on Form 20F, including Operating and Financial Review and Prospects in Item
5, contains both historical information and forward-looking statements
(within the meaning of Section 27A of the United States Securities Act of
1933, as amended (the Securities Act), and Section 21E of the United States
Securities Exchange Act of 1934, as amended (the Exchange Act)). These
forward-looking statements involve risks and uncertainties, as well as
assumptions that, if they never materialize, prove incorrect or materialize
other than as currently contemplated, could cause the results of the Company
and its consolidated subsidiaries to differ materially from those expressed
or implied by such forward-looking statements.
Numerous factors could cause actual results to differ materially from those
in the forwardlooking statements, including without limitation the risk that
actual reserves may vary considerably from estimates presently made, the
impact of currency, metal prices and metal production volatility, the
concentration of operations and assets in Venezuela, the regulatory,
political and economic risks associated with Venezuelan operations, our
ability to obtain additional funding for future development of the Brisas
property, our dependence upon the abilities and continued participation of
certain key employees, and the risks normally incident to the operation and
development of mining properties.
The words "believe," "anticipate," "expect," "intend," "estimate," "plan,"
"assume," "positioned," "may," "will," "could" and other similar expressions
that are predictions of or indicate future events and future trends which do
not relate to historical matters, identify forward-looking statements. Any
such forward-looking statements are not intended to give any assurances as to
future results.
Investors are cautioned not to put undue reliance on forward-looking
statements, and should not infer that there has been no change in the affairs
of the Company since the date of this report that would warrant any
modification of any forward-looking statement made in this document, other
documents filed periodically with securities regulators or documents
presented on our Company website. All subsequent written and oral
forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by this notice. The
Company disclaims any intent or obligation to update publicly these
forward-looking statements, whether as a result of new information, future
events or otherwise.
Investors are urged to read the Company's filings with U.S. and Canadian
regulatory agencies, which can be viewed on-line at www.sec.gov,
www.sedar.com or at the Company's website, www.goldreserveinc.com.
Additionally, you can request a copy directly from the Company.
Reserve Estimates
The reserve estimates set forth in this document have been prepared in
accordance with applicable Canadian and U.S. requirements. The definitions
related to reserves, used herein, are pursuant to Canadian National
Instrument 43-101, Standards of Disclosure for Mineral Projects, which we
believe are substantially the same as those definitions used in U.S.
Securities and Exchange Commission Industry Guide 7.
Currency
All currency is in U.S. Dollars unless otherwise noted.
Glossary
Certain technical terms used herein are defined in the glossary at the end of
this Annual Report.
Item 1. Identity of Directors, Senior Management and Advisors - Not Applicable
Item 2. Offer Statistics and Expected Timetable - Not Applicable
Item 3. Key Information
Selected Financial Data
The selected financial data set forth below are derived from the Company's
audited financial statements and should be read in conjunction with the
Company's consolidated financial statements and notes thereto appearing in
Item 17 and Operating and Financial Review and Prospects in Item 5. The
following selected financial data have been prepared on the basis of
accounting principles generally accepted in Canada.
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
(in thousands of U.S. Dollars, except share and per share amounts)
Other income $ 703 $ 1,200 $ 884 $ 965 $ 1,410
Net loss (3,008) (851) (1,311) (2,047) (2,450)
Loss per common share (1) (0.13) (0.04) (0.06) (0.09) (0.11)
Total assets 59,843 62,553 63,231 64,800 66,919
Net Assets (2)
Shareholders' equity (3) 58,412 61,169 61,859 63,303 64,713
Capital stock 102,498 102,266 102,106 102,067 101,661
Common shares: (4)
Issued 22,996,158 22,655,122 22,196,242 21,987,672 23,191,767
Outstanding 22,702,071 21,361,035 21,902,155 21,810,383 22,720,329
Equity Units: (4)
Issued 1,289,980 1,313,016 1,446,396 1,584,966
Outstanding 790,705 813,741 947,121 1,290,817
1. Basic and diluted.
2. Total assets prepared in accordance with accounting principles generally
accepted in the U.S. at December 31, 2002, 2001, 2000, 1999 and 1998 were
$59,884, $62,713, $63,329, $64,460, and, $66,907, respectively.
3. Total shareholders' equity prepared in accordance with accounting
principles generally accepted in the U.S. at December 31, 2002, 2001,
2000,1999, and 1998 was $58,453, $61,329, $61,957, $62,963, and $64,702,
respectively.
4. Great Basin and MGC Ventures, each consolidated subsidiaries of the
Company, own shares of the Company. As a result, the Company has an
indirect investment in itself. The shares held by these entities represent
the difference between issued and outstanding shares.
Dividends
We have not declared cash or share dividends since 1984 and have no present
plans to pay any cash or share dividends. We will declare cash or share
dividends in the future only if earnings and capital of the Company are
sufficient to justify the payment of such dividends.
Risk Factors
Potential investors should carefully evaluate all of the information
presented and incorporated by reference in this report and, in particular,
the following.
Obtaining additional funding for future project development and other
operating activities is a critical factor in the future success of the
Company.
We currently do not generate revenue from operations. We have historically
financed operating activities primarily from the sale of common shares. As of
April 30, 2003, the Company had approximately $12 million in cash and
investments. We will be required to seek additional funding in the coming
months in order to maintain our current cash position, which management
believes is in the best interest of the Company. We expect to seek additional
financing concurrently with completing the Brisas work program and other
limited exploration programs as discussed elsewhere in this document. We have
evaluated a number of financing options presented by our investment bankers in
the last several months, but have no firm commitments to proceed with a
financing. If we are unable to acquire additional funding on acceptable terms
in the short-term, there are no assurances that we will complete as planned,
the final feasibility study on the Brisas project.
In the near-term management believes that current cash and investment
balances are sufficient to allow the Company fund its activities through 2004.
The timing and extent of additional funding depends on a number of important
factors, including the actual timetable of our 2003-2004 work plan, our
assessment of the financial markets, our share price and the price of gold
and copper. Longer term, our plan for significant additional funding
(approximately $350 million) is dependent upon the successful completion of
the final feasibility study, if and when mine development activities on the
Brisas project are commenced, the acquisition of additional properties and
the overall capital requirements of the consolidated group. Management can
provide no assurances that it will be able to acquire the required
significant additional financing that will be needed, if and when,
construction on the Brisas project commences. Failure to raise the required
funds will impede the Company's ability to construct and operate the Brisas
project, negatively impacting the future of the Company.
Our operations are concentrated in Venezuela and could be disrupted.
Concentration of Assets
At December 31, 2002, approximately 78% of our identifiable assets were
located in Venezuela. Our sole operating assets are located in Venezuela.
Since President Chavez's re-election, Venezuela has experienced a number of
public protests, including the temporary removal of President Chavez,
high-level denunciations of the president's policies and agendas and general
populace unrest. During this time, Venezuela has also experienced ongoing
political unrest (including a national work stoppage and a number of civil
disturbances), fuel shortages, currency and exchange controls, and a decline
in industrial output and foreign investment.
Despite this political and economic turmoil, we have not seen any significant
adverse impact on our operations in Venezuela nor have we curtailed our
investment activities in the country. However, our future operations and
investments in Venezuela could be adversely affected by continued political
instability and civil unrest, as well as, exchange controls, currency
fluctuations, changes in mining laws or regulations, taxation, judicial
decisions and laws or policies of Venezuela and the United States affecting
trade, investment, taxation and other factors.
As it relates to Venezuela, development time schedules and future reclamation
and remediation cost estimates are based on existing and expected legal
requirements, past experience, cost estimates by management and others,
expectations regarding government action and time for government agencies to
act, all of which change over time and require periodic evaluation. Whether
and to what extent current or future economic, regulatory or political
conditions in Venezuela may affect future development cannot be predicted.
Imataca Forest Reserve
The Brisas property is located within the Imataca Forest Reserve (the
"Imataca") in the State of Bolivar. In 1986, an area within the Imataca,
which includes the Brisas property, was authorized by presidential decree for
mining activities. These regulations opening the region to various activities,
including mining, were later challenged by several parties as
unconstitutional. The Venezuelan Supreme Court (the "Court") subsequently
issued an order prohibiting new concessions in the Imataca. Subsequent to the
Court's order however, the MEM granted the Company the Brisas hardrock
concession. We have been advised by Venezuelan counsel that it is unlikely
that future rulings by the Court related to this issue will impact our
concessions, but there can be no assurance that an adverse ruling that
affects us will not occur.
Challenges to mineral property titles
Acquisition of title to mineral properties is a very detailed and
time-consuming process. The Company believes it has clear title to all of the
properties for which it holds concessions or other contracts and leases.
However, the Company does not know whether someone will challenge or impugn
title to such properties in the future or whether such challenges will be an
by individual or a government agency. Mining properties sometimes contain
claims or transfer histories that examiners cannot verify, and transfers
under foreign law often are complex. As a result, the Company can never be
certain that it will maintain valid title to its mining properties.
Therefore, a successful claim that the Company does not have title to a
property could negative impact the future results of the Company.
Venezuelan environmental laws and regulations
Venezuela maintains environmental laws and regulations for the mining
industry, which impose significant obligations on companies doing business in
the country. Venezuela's environmental laws and regulations are administered
through the Ministry of the Environment and Natural Resources (MARN). The
MARN proscribes certain mining recovery methods deemed harmful to the
environment and monitors concessionaires' activities to ensure compliance.
Compliance with these environmental laws and regulations may entail costs and
delays depending on the nature of the activity to be permitted and how
stringently the regulations are implemented by the permitting authority. Gold
Reserve does not maintain environmental liability insurance.
Venezuela's environmental legislation provides for the submission and
approval of environmental impact statements for certain operations and
provides for restrictions and prohibitions on spills, releases, or emissions
of various substances produced in association with certain mining industry
operations, such as seepage from tailings disposal areas which could result
in environmental pollution. Existing environmental laws may change and make
the mining and processing of ore uneconomic or result in significant
environmental or reclamation costs. Also, a violation of such legislation may
result in the imposition of fines and penalties or the suspension or closure
of mining operations.
Compliance with other laws and regulations
In addition to protection of the environment, the Company's exploration and
development activities are subject to extensive laws and regulations
governing health and worker safety, employment standards, waste disposal,
protection of historic and archaeological sites, mine development and
protection of endangered and protected species and other matters. Obtaining
the necessary permits are critical to our business. Obtaining and maintaining
such permits can be a complex, time consuming process and as a result the
Company cannot assess whether necessary permits will be obtained or
maintained on acceptable terms, in a timely manner or at all.
It is possible that future changes in applicable laws and regulations or
changes in their enforcement or regulatory interpretation could negatively
impact current or planned exploration and development projects. Any failure
to comply with applicable laws and regulations or failure to obtain or
maintain permits, even if inadvertent, could result in the interruption of
exploration and development operations or material fines, penalties or other
liabilities.
Currency fluctuations could negatively impact future operating results
The Bolivar/Dollar exchange rate ended 2002 at Bs. 1,403 to the Dollar, up
Bs. 645 from December 31, 2001. In early 2003, due to the rapid depreciation
of the currency, the government fixed the exchange rate at Bs. 1,600 per
Dollar and recently initiated special foreign currency transaction
restrictions. Past and recent conditions have not adversely affected our
operations as the Company primarily transfers funds into Venezuela for its
operations. However, this could change in the future at such time that the
Company begins production and sales from Venezuela. Additionally, future
fluctuations of the Venezuelan Boliver against the U.S. dollar could reverse
this trend and negatively impact the Company's financial condition.
Future results depend primarily upon the Brisas project.
The Company has invested approximately $70 million on the Brisas property,
which is an advanced stage development project. Any adverse development
affecting this property would significantly impact the future results of the
Company. Among other things, our future operations and investments in
Venezuela could be adversely affected by political instability, changes in
mining laws or regulations, judicial decisions and laws or policies of
Venezuela.
Operating losses are expected to continue until we construct or acquire an
operating mine.
We have experienced losses from operations for each of the last fifteen years
and expect this trend to continue for the next several years as the result of,
among other factors, expenditures associated with the management of activities
on the Brisas property, as well as other unrelated exploration expenses. This
trend is expected to reverse if and when the Brisas property is developed and
gold and copper are produced in commercial quantities. In order for the Brisas
project to be put into production, the Company will be required to raise more
than $350 million in the future. As a result, the Company will not be able to
undertake such development or production without proper financing in the
future.
The volatility of the price of gold and copper could have a negative impact
upon our future operations.
The price of gold and copper has a significant influence on the market price
of our common shares and our business activities. The price of gold is
affected by numerous factors beyond our control, such as the level of
inflation, fluctuation of the United States Dollar and foreign currencies,
global and regional demand, sale of gold by central banks and the political
and economic conditions of major gold producing countries throughout the
world. Recently the price of gold has partially recovered from a 20 year low.
Copper prices also fluctuate and are generally affected by global and regional
demand and existing inventories. As of April 30, 2003, the closing price for
gold and copper was: Gold: $337 per ounce, copper: $0.73 per pound. The
following table sets forth the average of the daily closing price for gold
and copper for the periods indicated as reported by the London Metal Exchange:
YEAR ENDED DECEMBER 31,
5 Yr. Avg. 2002 2001 2000 1999 1998
- ----------------------------------------------------------------------------
Gold ($ per ounce) 287 310 271 279 279 294
Copper ($ per pound) 0.74 0.71 0.73 0.80 0.71 0.75
The market price of our common shares may experience volatility.
Our Class A common shares are listed on the Toronto Stock Exchange and traded
in the U.S. Over-The-Counter-Market. Securities of small-cap companies have
experienced substantial volatility in the past, often based on factors
unrelated to the financial performance or prospects of the companies
involved. These factors include macroeconomic developments in North America
and globally and market perceptions of the attractiveness of particular
industries. Our share price is also likely to be affected by short-term
changes in gold and copper prices or in our financial condition or results of
operations as reflected in our publicly filed reports. Other factors unrelated
to our performance that may have an effect on the price of our Class A common
shares include the extent, if any, of analytical coverage of our business by
investment banks' research departments, limited trading volume and general
market interest or limited public float in our securities, as well as new
regulatory rules.
As a result of any of these factors, we believe the market price of our Class
A common shares at any given point in time may not accurately reflect our
long-term value. Securities class action litigation often has been brought
against companies following periods of volatility in the market price of
their securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and damages and
divert management's attention and resources.
Our mineral reserve estimates could cause the Company to improperly allocate
its assets.
The mineral reserve and resource estimates set forth in this document have
been prepared in accordance with the disclosure requirements of applicable
Canadian and U.S. Securities Commissions. The definitions related to
reserves, used herein, are pursuant to Canadian National Instrument 43-101,
Standards of Disclosure for Mineral Projects, which we believe are
substantially the same as those definitions used in the U.S. Securities and
Exchange Commission Industry Guide 7.
Behre Dolbear & Company, Inc. (Behre Dolbear) audited the Company's data
collection procedures and modeling and mineral reserve methodology for the
preliminary feasibility study. Behre Dolbear concluded in their reports that:
technical data collection procedures met or exceeded accepted industry
standards; assay laboratories provided reliable and acceptable results; and
the compiled database was of a quality appropriate for utilization in a
mineral reserve study suitable for obtaining financing.
Notwithstanding the conclusions of management and its qualified consultants,
mineral reserve estimation is an interpretive process based on drilling
results and experience as well as estimates of mineralization characteristics
and mining dilution, metal prices, costs of mining and processing, capital
expenditures and many other factors. Grades of mineralization processed at
any time also may vary from mineral reserve estimates due to geologic
variations within areas mined.
Production may vary substantially from estimates because of changes in
mineral reserves, variations in mineralization mined from estimated grade and
metallurgical characteristics, unexpected ground conditions, mining dilution,
labor actions and government regulations or restrictions or estimates that
prove to be incorrect. Cash costs may differ substantially due to variations
in mineral reserves and production estimates, unexpected mining conditions
and changes in estimated costs of equipment, supplies, utilities and labor
and exchange rates. Noncash estimates, based on total capital costs and
mineral reserve estimates, could change substantially based on actual amounts
of capital incurred.
Actual quality and characteristics of deposits cannot be fully assessed until
mineralization is actually mined and as a result, mineral reserves change over
time to reflect actual experience. If the Company's estimates are incorrect,
it may allocate its assets to a less than economical deposit or to disregard
what could be a significant deposit, resulting in expenditures that do not
provide expected results.
Management and control of risks inherent in the mining industry could have a
significant impact on the Company's future operations.
Development of a gold and copper project is subject to all of the risks
inherent in the mining industry, including environmental hazards, industrial
accidents, labor disputes, legal regulations or restrictions, unusual or
unexpected geologic formations, cave-ins, flooding, and periodic
interruptions due to inclement weather. These risks could result in damage
to, or destruction of, mineral properties and production facilities, personal
injury, environmental damage, delays, monetary losses and legal liability.
Insurance covering environmental or other catastrophic liabilities is not
maintained and will not be maintained in the future unless it is economically
feasible or may not be available at all. Insurance against environmental risks
(including pollution or other hazards resulting from the disposal of waste
products generated from exploration and production activities) is not
generally available to companies in the mining industry. The payment of
environmental liabilities would reduce available funds and in the event we
were unable to fund the cost of remedying an environmental problem, we might
be required to suspend operations or enter into interim compliance measures
pending completion of remedial activities.
Future gold hedging activities could negatively impact future operating
results.
The Company has not entered into forward contracts to sell gold that it might
produce in the future and, although the Company has no near term plans to
enter such transactions, it may do so in the future if required for project
financing subjecting the Company to certain financial risks. Forward
contracts obligate the holder to sell gold at a price set when it enters into
the contract, regardless of what the price is when the gold is actually mined.
Accordingly, there is a risk that the price of gold is higher at the time the
gold is mined than when it enters into the contracts, so that the gold must
be sold at a price lower than could have been received if the contract was
not entered.
In addition, if production of gold is less than that agreed upon in the
contracts, additional gold would have to be purchased at market prices to
satisfy contract obligations. These market prices may be higher than the
agreed upon delivery price or higher than production costs. Further, the
entity contracting to buy the gold from the Company could default, which
means that if the contract price is higher than the market price at the time
of delivery, it is unlikely the gold could be resold in the market at the
higher price.
Management of the inherent risks associated with the development of a mining
project.
Capital expenditure estimates for the Brisas property are based on available
information. Estimates contained in the preliminary feasibility study could
differ significantly from those contained in the final feasibility study
however, management does not currently anticipate any significant changes. It
is not unusual in new mining operations to experience unexpected problems
during development. Costs could increase depending upon a number of factors
within and beyond our control. The capital cost estimates outlined in this
report are based on operating experience, expected production, estimates by
and contract terms with third-party suppliers, expected legal requirements,
reports by our employees and independent contractors and other factors.
Factors involved in estimated time for completion of projects include our
management's experience in completing capital projects, estimates by and
contract terms with contractors, engineers, suppliers and others involved in
design and construction of projects, and estimated time for government
entities to process applications, issue permits and take other actions.
Changes in any of these factors may cause costs and time for completion to
vary significantly from estimates.
Ability to insure certain risks could have a significant impact on future
operating results
It is not always possible to obtain insurance against risks associated with
the exploration and development of mineral properties or related production
operations. These risks include unexpected or unusual geological operating
conditions, slides, fires, floods, environmental events such as severe
weather and earthquakes, and political and social instability. Should such
uninsured liabilities arise, they could reduce or eliminate profitability,
result in increasing costs or have a material adverse effect upon the
Company.
Industry competition for new properties could limit the Company's ability to
grow in the future.
We face strong competition from other mining companies in connection with the
acquisition of future properties considered to have commercial potential. Many
of these companies have greater financial resources, operational experience
and technical capabilities. As a result, we may be unable to acquire
additional mining properties, thereby limiting future growth.
Acquiring and retaining key personnel in the future could have a significant
impact on future operating results.
We are dependent upon the abilities and continued participation of key
management personnel. If the services of our key employees were lost, it
could have a material adverse effect on future operations.
Item 4. Information on the Company
History and Development of the Company
History
Gold Reserve Inc. (the "Company") is a mining company incorporated in 1998
under the laws of the Yukon Territory, Canada; and is the successor issuer to
Gold Reserve Corporation, a Montana corporation formed in 1956. The Company's
registered agent is Austring, Fendrick, Fairman & Parkkari, The Drury
Building, 3801 Third Avenue, Whitehorse, Yukon, Y1A 4Z7. Telephone and fax
numbers for the Company's registered office are 867.668.4405 and
867.668.3710, respectively.
Organizational Structure
References to the "Company" throughout this report refer primarily to Gold
Reserve, Inc., Gold Reserve Corporation (domiciled in Canada and the U.S,
respectively), Gold Reserve de Venezuela, C.A. ("GLDRV"), Compania Aurifera
Brisas del Cuyuni, C.A. ("BRISAS") (domiciled in Venezuela), and Great Basin
Energies, Inc. ("Great Basin") and MGC Ventures Inc. ("MGC Ventures") (U.S.
corporations), which have no current business activities. All subsidiaries
are wholly owned except for Great Basin and MGC Ventures, which are owned 58%
and 63%, respectively.
Corporate Reorganization
In February 1999, Gold Reserve Corporation became a subsidiary of Gold
Reserve Inc., the successor issuer (the "Reorganization"). Generally, each
shareholder of Gold Reserve Corporation received one Gold Reserve Inc. Class
A common share for each common share owned in Gold Reserve Corporation.
Certain U.S. holders elected, for tax reasons, to receive equity units in
lieu of Class A common shares. An equity unit, comprised of one Gold Reserve
Inc. Class B common share and one Gold Reserve Corporation Class B common
share, is substantially equivalent to a Class A common share and is generally
immediately convertible into Class A common shares. Equity units are not
listed for trading on any stock exchange, but subject to compliance with
applicable federal, provincial and state securities laws, may be transferred.
Unless otherwise noted, general references to common shares of the Company
include Class A common shares and Class B common shares as a combined group.
After the Reorganization, a shareholder continued to own an interest in the
business that in aggregate was essentially the same as before the
Reorganization.
Primary Mining Asset
Brisas
Our primary mining asset, the Brisas property, is a gold and copper deposit
located in the KM 88 mining district of the State of Bolivar in southeastern
Venezuela. Approximately $70 million has been expended on the Brisas property
since its acquisition in 1992. The Brisas property is a late-stage development
project, which produces no revenue at this time. Proven and probable mineral
reserves on the Brisas property, originally reported upon in early 2000,
total approximately 6 million ounces of gold and 706 million pounds of copper
using US $300 per ounce gold and US $0.80 per pound copper and approximately
6.7 million ounces of gold and 871 million pounds of copper using US $325 per
ounce gold and US $0.90 per pound copper. The total mineral resource on the
property approximates 10 million ounces of gold and 1 billion pounds of
copper. The mineral reserve and resource estimates set forth in this document
have been prepared in accordance with the disclosure requirements of
applicable Canadian and U.S. Securities Commissions. The definitions related
to reserves, used herein, are pursuant to Canadian National Instrument
43-101, Standards of Disclosure for Mineral Projects, which management
believes are substantially the same as those definitions used in the U.S.
Securities Commission Industry Guide 7.
Behre Dolbear & Company, Inc. (Behre Dolbear) audited the Company's data
collection procedures and modeling and mineral reserve methodology for the
preliminary feasibility study conducted in 1998, as well as the updated 1999
reserve. Behre Dolbear concluded in their reports that: technical data
collection procedures met or exceeded accepted industry standards; assay
laboratories provided reliable and acceptable results; and the compiled
database was of a quality appropriate for utilization in a mineral reserve
study suitable for obtaining financing. Further, Behre Dolbear has concluded
that Gold Reserve has an adequate basis for supporting the estimated mineral
reserves at the Brisas project in accordance with the standards in the U.S.
Securities and Exchange Commission Industry Guide 7.
Financial Position
As of April 30, 2003, the Company held approximately $12 million in cash and
investments. We will be required to seek additional funding in the coming
months in order to maintain our current cash position, which management
believes is in the best interest of the Company. We expect to seek additional
financing concurrently with completing the Brisas work program and other
limited exploration programs as discussed elsewhere in this document. We have
evaluated a number of financing options presented by our investment bankers in
the last several months, but have no firm commitments to proceed with a
financing. If we are unable to acquire additional funding on acceptable terms
in the short-term, there are no assurances that we will complete as planned,
the final feasibility study on the Brisas project. Significant additional
financing will be needed if and when construction on the Brisas property
commences.
Shares Issued
As of April 30, 2003, the Company had the following Class A common shares,
equity units and share purchase options issued:
Class A common shares 22,996,158
Equity Units* 1,289,980
----------
Total Issued 24,286,138
Share purchase options 3,368,549
----------
Fully diluted 27,654,687
==========
* An equity unit consists of one Class B common share of Gold Reserve Inc.
and one Class B common share of Gold Reserve Corporation. Equity units are
convertible into Class A common shares of Gold Reserve Inc. on a one-to-one
basis.
Description of Property
The Brisas Property
Location
The Brisas property is located in the KM 88 mining district in the State of
Bolivar in southeastern Venezuela approximately 373 kilometers (229 miles),
by paved highway, southeast of Puerto Ordaz. The property, 3.5 kilometers
west of the KM 88 marker on Highway 10, occupies a rectangular area of
approximately 500 hectares or 2,500 meters north-south by 2,000 meters
east-west and is accessible by an all-weather road.
Ownership
The Brisas property consists of the Brisas alluvial concession, the Brisas
hardrock concession beneath the alluvial concession, applications in process
for other mineralization (primarily nominal values of copper and silver)
contained in these concessions, mineralization (primarily gold, copper and
molybdenum) on small land parcels contiguous to the existing concessions and
approval of concession transfers. In addition, the property includes various
work contracts granted by Corporation Venezolana de Guayana (CVG). The term
Brisas property is used interchangeably with Brisas project.
The Brisas alluvial concession was acquired through the acquisition of
BRISAS. The Brisas hardrock concession was granted to BRISAS in March 1998.
Both concessions were granted by the Ministry of Energy and Mines ("MEM"),
pursuant to the 1945 mining law. The Brisas alluvial concession is an
exploitation concession with a term of 20 years and two renewal periods of 10
years each, at the discretion of MEM, and a 3% tax on gold sales. The Brisas
hardrock concession is an exploitation concession with a term of 20 years and
two renewal periods of 10 years each, at the discretion of the MEM. The
hardrock concession provides for up to a 4% tax on gold sales and up to a 7%
mine mouth tax on copper production. Any gold sold directly to the Central
Bank of Venezuela is subject to a maximum 1% tax.
The Brisas alluvial concession provides the MEM or its designate, the right
("special advantage" to the Republic of Venezuela) to acquire twenty percent
(20%) of the company organized by the alluvial concession holder to perform
extraction activities within the concession. The Brisas alluvial concession
represents approximately eight percent (8%) of the combined Brisas property
mineralization. Venezuelan counsel has confirmed that to the best of their
knowledge the MEM has never enforced such provisions contained in similar
concessions. For this reason, it is unclear how the value of the twenty
percent (20%) of the alluvial concession would be determined, in the event
the MEM chose to exercise such right pursuant to the concession.
Regional Infrastructure
The Brisas project site is located in the State of Bolivar, Guayana region.
The nearest major city is Puerto Ordaz, with approximately 700,000
inhabitants. Puerto Ordaz has major port facilities, accessible to
ocean-going vessels from the Atlantic Ocean, via the Orinoco, a distance of
about 200 km. Puerto Ordaz is the center of major industrial developments in
the area, including iron and steel mills, aluminum smelters, iron and bauxite
mining and forestry. These industries are supported by major hydroelectric
generating plants on the Caroni River, which provide 12,900 MW of
electricity. A 400 kV power line runs through the community of Las Claritas,
nearby the project, and is expected to supply sufficient power for the Brisas
property. A transformer station is located 3 km from the property.
Puerto Ordaz is a modern urban center with good road and air connections to
the rest of Venezuela. There are regularly scheduled flights to Caracas and
other major cities several times daily. There are also port facilities 428 km
northwest of Puerto Ordaz on the Caribbean coast. Guanta, near Barcelona,
would likely be the port of entry for most construction, mining and milling
equipment. The highway system within Venezuela is generally good, with paved
roads in good condition providing access to within 3.5 km of the Brisas
property. A four-lane highway runs from Puerto Ordaz, northwest to both
Barcelona and Guanta, and for 55 km south to Upata where it becomes two-lane
on into Brazil.
Preliminary Feasibility Study
The preliminary feasibility study was originally completed in 1998 with the
assistance of JE MinCorp, a Division of Jacobs Engineering Group Inc., and a
number of other independent consultants and originally updated in early 2000.
Behre Dolbear audited our data collection procedures and modeling and mineral
reserve methodology for the preliminary feasibility study. Behre Dolbear
concluded in their reports that: technical data collection procedures met or
exceeded accepted industry standards; assay laboratories provided reliable
and acceptable results; and the compiled database was of a quality
appropriate for utilization in a mineral reserve study suitable for obtaining
financing. Further, Behre Dolbear concluded that the estimating techniques
used were an accurate representation for the mineral reserves; drill hole
spacing was sufficient to generate future estimates of proven and probable
mineral reserves; and the database was correct and reliable. The Behre
Dolbear audits also concluded that the mineral reserve risk for the project
is low and there is upside potential for additional mineral reserves at the
Brisas property because the mineralization can be extrapolated with quite
high confidence beyond the current drilling in the down dip direction and to
the north.
A final feasibility study will be required to be completed before a
production decision on the property can be made. There are no assurances,
however, that a final feasibility study will be completed or that the Company
will be successful in arranging the required financing.
Geology
The Brisas property is within the Proterozoic granite-greenstone terrain of
the Guyana shield. The shield covers eastern Colombia, southeastern
Venezuela, Guyana, Suriname, French Guiana and northeastern Brazil. The
terrain is a thick section of andesite to dacite volcanics intruded by
numerous granite stocks and batholiths. Several periods of deformation,
metamorphism, and mineralization can be documented within this terrain.
The rock units on the Brisas property are divided into weathered and
unweathered. Weathered rock or saprolite is further defined by the degree of
oxidation into oxide saprolite and sulfide saprolite. Both contain clays and
quartz with the oxide saprolite having iron oxides such as hematite and
goethite while in the sulfide saprolite the iron is present as pyrite. The
unweathered rocks consist of andesite or dacite tuffs that are further
subdivided based on the presence or absence of mineral crystals and lithic or
lapilli fragments. Unweathered intrusive rocks include a tonolite stock and
basalt dikes and sills. The tuffs strike northerly and dip 30 to 35 degrees
to the west. No faulting can be recognized within the deposit.
The mineralization is stratabound and strataform within a 200-meter thick
series of tuffs marked by rapid horizontal and vertical facies changes. The
gold-copper mineralization is over 1,900 meters long and 500 to 900 meters
wide. Mineralization continues for an unknown distance down-dip to the west,
north and south, as well as, below the current deposit. Three styles of
mineralization are seen: (1) massive sulfide-quartz-tourmaline breccia with
pyrite, chalcopyrite and gold in an outcrop referred to as the Blue Whale,
(2) stratabound, disseminated pyrite-gold-copper mineralization and (3)
quartz-calcite high angle veins marked by erratic but high gold values. The
disseminated mineralization is characterized by a
calcite-quartz-epidote-sulfide alteration and constitutes the bulk of the
economic mineralization. There appears to be no relationship between the
disseminated mineralization and the high angle veins. The mineralization to
the north is generally pyrite-chalcopyrite-gold with the copper content
decreasing to the south until in the southern portion of the deposit the
copper is a minor constituent of the mineralization. Mineralization is open
down dip to the west and to the north.
Mineral Resource
The Brisas property is estimated to contain a total mineral resource of 9.88
million ounces of gold and approximately 1.13 billion pounds of copper (based
on 0.5 gram per tonne gold equivalent cut-off). The mineral resource
originally calculated by management in November 1999, is summarized in the
following tables:
Measured Indicated Inferred Total
Au Eq --------------------- --------------------- -------------------- ------------------------
Cutoff Au Cu Au Cu Au Cu Au Cu
Grade kt (gpt) (%) kt (gpt) (%) kt (gpt) (%) kt (gpt) (%)
- ------ -----------------------------------------------------------------------------------------------
0.50 221,042 0.805 0.111 145,028 0.690 0.155 40,103 0.733 0.110 406,173 0.757 0.127
=============================================================================================================
In Millions
Measured Indicated Inferred Total
Au Eq --------------------- --------------------- -------------------- ------------------------
Cutoff Au Cu Au Cu Au Cu Au Cu
Grade oz. lb. oz. lb. oz. lb. oz. lb.
- ----- -----------------------------------------------------------------------------------------------
0.50 - 5.721 541.0 - 3.217 495.7 - 0.945 97.3 - 9.883 1,134.0
=============================================================================================================
Proven and Probable Mineral reserves
Based on the preliminary feasibility study, the Brisas property contains
approximately 235 million tonnes of ore with an average grade of 0.79 grams
per tonne gold and 0.14% copper and a waste to ore ratio of 1.63:1. At a
plant feed grade of 0.79 grams of gold per tonne, the total recovery of gold
is anticipated to be 79%. Recovery of copper, at an average feed grade of
0.14%, is anticipated to be 82.5%. The mineral reserve estimate, originally
effective January 2000, has been prepared by management in accordance with
reporting requirements of applicable Canadian and U.S. Securities Commissions
and is presented in tabular form below:
Pit design using $300/oz Au and $0.80/lb. Cu (and $3.30/tonne revenue cutoff)
- -----------------------------------------------------------------------------
Reserve Au Cu Waste Total
tonnes Au Grade Cu Grade ounces pounds tonnes tonnes Strip
Class (thousands) (gpt) (%) (thousands) (thousands) (thousands) (thousands) Ratio
- -----------------------------------------------------------------------------------------------------------
Proven 187,443 0.814 0.119 4,906 491,841
Probable 47,411 0.682 0.205 1,040 214,309
- -----------------------------------------------------------------------------------------------------------
Total 234,854 0.787 0.136 5,946 706,150 383,912 618,766 1.63
===========================================================================================================
Pit design using $325/oz Au and $0.90/lb. Cu (and $3.30/tonne revenue cutoff)
- -----------------------------------------------------------------------------
Reserve Au Cu Waste Total
tonnes Au Grade Cu Grade ounces pounds tonnes tonnes Strip
Class (thousands) (gpt) (%) (thousands) (thousands) (thousands) (thousands) Ratio
- -----------------------------------------------------------------------------------------------------------
Proven 209,954 0.778 0.121 5,252 560,167
Probable 70,053 0.630 0.201 1,419 310,387
- -----------------------------------------------------------------------------------------------------------
Total 280,007 0.741 0.141 6,671 870,554 411,282 691,289 1.47
===========================================================================================================
Brisas Property Economics
Based on present estimates, the plant for the large-scale open pit mining
operation is expected to process an estimated 55,000 tonnes per day, yielding
an estimated average annual production of 362,000 ounces of gold and 46
million pounds of copper, over a mine life of 13 years.
The processing flowsheet contained in the preliminary feasibility study and
developed from metallurgical testwork completed by three independent
laboratories includes conventional crushing with a primary gyratory crusher
and grinding with SAG mill and ball mills followed by gravity separation to
recover coarse gold, flotation and cyanidation of cleaner flotation
tailings. Present estimates of capital requirements for initial construction
of the mill and on-site copper production would be approximately $353 million,
including working capital of approximately $19.5 million. Ongoing life-of-mine
requirements are estimated at $59 million.
The preliminary feasibility study also contemplates the implementation of
on-site copper processing using the Cominco Engineering Services Limited
(CESL) technology. The CESL process utilizes an autoclave for pressure
oxidation of the concentrates followed by a series of leaching sequences to
recover the copper and gold. The CESL process eliminates significant
transportation costs for the copper gold concentrates to an out-of-country
smelter, resulting in improved project economics.
The Brisas project will require the use of economies of scale production
methods with higher production rates resulting in lower unit costs. As a
result, a plant design with capacity at 55,000 tonnes per day or 18 million
tonnes per year is anticipated for the project. Estimated operating cash
costs including mining, processing with production of on-site copper cathode,
smelting and refining total $153 per ounce of gold net of copper revenues
($0.90 per pound copper). Operating cash costs excludes exploitation taxes of
approximately $8 per ounce. Total costs per ounce of gold produced are
estimated at $243, including operating costs (including exploitation taxes),
working capital, initial capital and life of mine capital net of copper
revenues less sunk costs.
The ultimate design and future cost of construction of the plant is subject
to the results of a final feasibility study which will be required to be
completed before a production decision can be made in the future.
Construction of the planned facility is expected to take approximately 18 to
24 months, with commissioning and achievement of commercial production
expected shortly thereafter. Most operating supplies will be imported,
probably from North America. Electrical power is available from 400kV
transmission line and transformer station, which passes within a few
kilometers of the property. The project water requirements will be met by
water pumped from the pit de-watering system and by rainfall stored in the
tailings water pond. On site accommodations will be provided for employees.
Brisas Project Development
During the last three years we have invested approximately $3 million on the
development of the Brisas project. Approximately $70 million has been
expended on the Brisas project since inception. These costs include property
and mineral rights, equipment expenditures, litigation settlement costs and
exploration and development costs. Considerable exploration and development
work has taken place to establish the mineral resource, proven and probable
reserves and complete a preliminary feasibility study.
Activities on the property include:
Extensive geology, geophysics and geochemistry
763 exploration drill holes
Approximately 165,000 meters or over 100 miles of core drilling
Audits by Behre Dolbear of exploration drilling, sampling, assaying
procedures and ore reserves methodology
Environmental baseline work/socioeconomic studies
Hydrology studies
Geotechnical studies
Mine planning
Audit by Behre Dolbear of proven and probable reserves methodology
Advanced stage grinding and metallurgical testwork
Tailings dam designs
Milling process flow sheet designs
Pre-feasibility study with JE MinCorp
Supplement to the pre-feasibility study with JE Mincorp
Bench scale testing of Cominco Engineering Services Limited on-site
copper process
Due to the low gold price during the past several years, we evaluated
alternatives to improve the economics of the Brisas project. We determined
was that the best alternative was to combine the Brisas project with the
adjacent Cristinas project, thereby realizing substantial economies of scale.
The two projects are contiguous to each other with our Brisas property to the
south and the Cristinas property to the north. These efforts accelerated in
late 2001 into 2002 and, for this reason, substantive development activities
on the Brisas project were limited in 2002 while management pursued efforts
to combine the Brisas and Cristinas properties into one mining project. These
efforts were terminated in September 2002, when CVG awarded a work contract
related to the Cristinas property to another company. While management still
believes that the best alternative is the combined project, the Company is
proceeding with the Brisas project on a stand-alone basis.
During the first quarter of 2003, MEM approved an operating plan for the
alluvial and hardrock ore and project infrastructure for the Brisas
project. Earlier, MARNR approved an EIS for the alluvial-ore mining
plan. Based on the alluvial and hardrock ore operating plan approved by MEM,
the Company is preparing an updated and expanded EIS for the larger
project. The Brisas project is located in the Imataca Forest Reserve
("Imataca") in an area previously set aside for mining. In 1997 the Supreme
Court issued a preventive measure that no new mining concessions or rights
could be granted in the Imataca. Subsequent to the Supreme Court order, MEM
granted BRISAS the hardrock exploitation concession. Prior to the granting of
the hardrock concession and subsequent to the Supreme Court order the Company
had submitted to MEM and MARNR several concession and permit applications
related to the Brisas project. These applications are currently pending the
resolution of the Imataca matter. In accordance with the 1945 mining law,
exploitation activities are required to commence within two years from the
approval of the operating plan. Representatives from MEM and MARNR have
indicated that the Imataca issue should be resolved during the next twelve
months. In addition, these representatives have indicated that any delay in
the resolution of the Imataca matter further delays any obligation required
of the concession and/or contract holder.
Planned 2003 Development for the Brisas Project
During 2003 we expect to commence activities on the Brisas property, which
are required to complete a final feasibility study. These additional
activities, which are expected to cost approximately $7 million, may include
mining of a bulk sample for the applicability of CESL, further metallurgical
testing, drilling, geotechnical studies and environmental studies, final
feasibility and engineering, as well as permitting and on-going maintenance.
The timing of these activities are subject to, among other things, typical
environmental and regulatory permits as well as the scheduling of third party
consultants and contractors. As a result, we cannot say with certainty when,
or if, the final feasibility study will be completed.
Venezuelan Mining, Environment and Other Matters
Venezuelan mining operations are subject to laws of title that differ
substantially from those of Canada and the United States, while at the same
time are subject to various mining and environmental rules and regulations
that are similar in purpose to those in Canada and the United States, but
often more bureaucratically complex. The following is a summary of the more
significant Venezuelan mining and environmental laws and other laws and
regulations that may affect the Company's operations on the Brisas property,
but does not purport to be a comprehensive review of all laws or a complete
analysis of all potential regulatory considerations related to the Brisas
property.
1999 Mining Law
A new Venezuelan mining law was approved and subsequently published in the
Official Gazette on September 28, 1999 (the "Mining Law") that establishes
five basic ways to structure mining activities with the primary one being
concessions for exploration and subsequent exploitation.
Scope and Term of Concessions
The Mining Law sets out the basic requirements for a concession application
to the MEM, including:
Identification of the mineral(s) to be explored for and exploited,
Evidence of technical, economic and financial capability, and
Special advantages to be granted to the Republic in different areas (e.g.
technology, infrastructure, social facilities, training obligations,
etc.).
Before initiating exploitation, the concession holder must provide to the
MARN an environmental bond to guarantee the rehabilitation of the environment
at the completion of exploitation.
The concession holder will have the right to exploit the granted minerals
regardless of whether they occur in the vein (veta) or alluvial and the
concession will extend only to minerals specifically covered by the
concession. A concession holder that finds a deposit of another mineral must
inform the MEM and make separate application for such mineral, subject to the
1999 mining law.
The term of a concession is twenty years (from the date the certificate of
exploitation is granted) with two subsequent ten-year renewals, provided the
concession holder has received such renewal within 3 years before the
expiration of the term of the concession. Concession exploration periods are
three years with a possible extension for one year. The concession holder
must obtain an exploitation certificate by application to the MEM. A
feasibility study covering the technical, financial and environmental aspects
of the project must accompany the application. The concession holder has seven
years from the date of the exploitation certificate to commence exploitation.
Concession holders are subject to several royalties or taxes. A nominal
surface tax is to be paid quarterly commencing on the fourth anniversary of
the grant of the concession. In addition, minimum royalties or exploitation
tax are assessed as follows:
Gold, silver, platinum and associated metals, 3% of their commercial value
as determined by the parties in the city of Caracas,
Diamonds and other precious stones, 4% of their commercial value as
determined in the city of Caracas,
In other cases, including copper, 3% of their commercial value at the mine
mouth. The MEM can reduce this tax from 3% to 1% (and subsequently increase
it back to 3%) if economic conditions warrant.
Also, the government is entitled to exempt, either totally or partially,
concession holders from taxes on importation of tools and equipment not
produced in the country and needed to develop mining activities.
1945 Mining Law Transition Provisions
All concessions acquired by BRISAS under the 1945 Mining Law are governed by
the 1999 Mining Law subject to the following provisions: a) the right to
conduct exploitation activities will be limited to the minerals and deposits
indicated in the corresponding mining titles and b), the term of the
concession is the one indicated in the corresponding mining titles, which
commences from publication thereof in the Official Gazette.
Conversion of CVG Work Contracts into Mining Concessions
The Transitory Provisions included in Title XI of the 1999 Mining Law
contemplate the conversion of CVG Work Contracts into mining concessions.
BRISAS has acquired several other properties located near the Brisas property
pursuant to CVG Work Contracts and has applied to MEM in a timely manner for
conversion thereof into mining concessions. MEM have not indicated when they
expect to act on these conversion applications.
Environmental Laws and Regulations
Venezuela's environmental laws and regulations are administered through the
MARN. The MARN proscribes certain mining recovery methods deemed harmful to
the environment and monitors concessionaires' activities to ensure
compliance. Construction and production activities require three different
permits from the MARN: (1) Permit to Occupy the Territory ("Occupation
Permit"), (2) Permit to Affect for Exploration ("Exploration Permit") and (3)
Permit to Affect for Construction and Exploitation ("Exploitation Permit").
Although not consistently applied in the past, regulations state that the MEM
will apply for and obtain the Occupation Permit on behalf of those persons or
entities applying for concessions before granting the concession title.
Applicants submit an environmental questionnaire to MEM, which they in turn
submit to the MARN. The production permitting process is initiated by filing
the proposed terms of reference which, when approved, serves as the basis for
an Environmental Impact Statement (EIS). The format for the EIS is stipulated
in a 1996 law (Decree #1257) and conforms to an international standard.
Other Taxes
Venezuelan tax law provides for a maximum corporate income tax rate on mining
companies of 34%. This rate applies to net income over approximately US$36,000
depending on exchange rates. Other Venezuelan taxes that apply or may
eventually apply to the Company's subsidiaries include a 1% tax on the value
of tangible and intangible business assets, a 16% value added tax on goods
and services, a 5% to 20% import duty on mining equipment and a 1% tax on
certain bank transactions. Upon application, Venezuela offers certain
exemptions from value added tax and import duties to mining companies.
Management expects to apply for exemption, where available, in the future.
There can be no assurances, however, that exemption will be granted.
Political and Economic Situation
In recent years, Venezuela has seen a number of significant changes in its
political system. Hugo Chavez Frias was originally elected President in
December 1998 in response to a high level of voter dissatisfaction with the
country's established political parties and his promise to make profound
changes including a new constitution and a war against corruption. A
131-member Constituent Assembly rewrote the 1961 constitution, which was
overwhelmingly approved in a December 1999 public referendum. As a result,
President Chavez's was re-elected in 2000.
Since his re-election, President Chavez's popularity has reportedly declined
and Venezuela has experienced a number of public protests, including the
temporary removal of President Chavez as head of the country, high-level
denunciations of the president's policies and agendas and general populace
unrest. During this time, Venezuela has also experienced ongoing political
unrest (including a national work stoppage and a number of civil
disturbances), fuel shortages, currency and exchange controls, and a decline
in industrial output and foreign investment.
Despite this political and economic turmoil, we have not seen any significant
adverse impact on our operations in Venezuela nor have we curtailed our
investment activities in the country. However, our future operations and
investments in Venezuela could be adversely affected by continued political
instability and civil unrest, as well as, exchange controls, currency
fluctuations, changes in mining laws or regulations, taxation, judicial
decisions and laws or policies of Venezuela and the United States affecting
trade, investment, taxation and other factors.
As it relates to Venezuela, development time schedules and future reclamation
and remediation cost estimates are based on existing and expected legal
requirements, past experience, cost estimates by management and others,
expectations regarding government action and time for government agencies to
act, all of which change over time and require periodic evaluation. Whether
and to what extent current or future economic, regulatory or political
conditions in Venezuela may affect future development cannot be predicted.
The Bolivar/Dollar exchange rate ended 2002 at Bs. 1,403 to the Dollar, up
Bs. 645 from December 31, 2001. An exchange peg policy was maintained
throughout 2001, but abandoned in February 2002. During 2002, a free floating
exchange rate system was established, with the Venezuelan Central Bank acting
as the main foreign currency seller. In early 2003, due to the rapid
depreciation of the currency, the government fixed the exchange rate at Bs.
1,600 per Dollar.
Gold Sales
The Central Bank of Venezuela (BCV) allows gold mining companies to sell up
to 85% of their production on the international market. The remaining 15%
must be sold domestically at the current market price, which is paid in
Venezuelan currency. Gold sold domestically to BCV is assessed a maximum tax
of 1% of the value of gold as compared to the amount stated in the mining law.
Labor
Venezuela, typical of most countries, has extensive labor laws and
regulations including obligations to favor Venezuelan nationals for
employment whenever possible. It is anticipated that, in the initial stages
of the Brisas property project, approximately 95% of the workforce will be
Venezuelan. In order to maintain or exceed this level, the Company will
implement an extensive training program over the life of the project on the
Brisas property. Management plans to draw on Venezuela's large industrial
base to staff many of its positions, but the experience base for large-scale
mining and milling operations in Venezuela is limited. The Brisas property
project will draw on the Puerto Ordaz area to fill a significant portion of
the required management, engineering and administration staff with the
remaining positions to be filled from the local (Las Claritas) area.
Item 5. Operating and Financial Review and Prospects
Overview
We prepare our consolidated financial statements in U.S. Dollars in
accordance with accounting principles generally accepted in Canada. A
reconciliation of the principal measurement differences between accounting
principles generally accepted in Canada and the U.S. is presented in Note 11
of the consolidated financial statements.
The Company has not recorded revenue or cashflow from mining operations and
has experienced losses from operations for each of the last five years, a
trend we expect to continue until the Brisas property is fully developed and
put into production. The information contained herein should be read in
conjunction with the Company's consolidated financial statements, included
herein.
Venezuela has experienced high levels of inflation during the last several
years and has also most recently experienced ongoing political instability
and civil unrest (including a national work stoppage and a number of civil
disturbances), fuel shortages, currency and exchange controls, and a decline
in industrial output and foreign investment. Despite this political and
economic turmoil, we have not experienced any significant adverse impact on
our operations in Venezuela nor have we curtailed our investment activities
in the country. However, our future operations and investments in Venezuela
could be adversely affected by continued political instability and civil
unrest, as well as, exchange controls, currency fluctuations, political
instability, changes in mining laws or regulations, taxation, judicial
decisions and laws or policies of Venezuela and the United States affecting
trade, investment, taxation and other factors.
Significant Accounting Policies
The Company's accounting policies are described in Note 1 of the consolidated
financial statements. The more significant accounting policies are as follows:
Marketable Securities. Equity securities are carried at the lower of cost and
net realizable value. Corporate debt securities and U.S. treasuries and agency
obligations are carried at amortized cost. If the market value of long-term
investments is lower than the cost and the decline is judged to be other than
temporary, the investment is written down to recognize the loss.
Exploration and Development Costs. Exploration costs incurred in locating
areas of potential mineralization are expensed as incurred. Exploration costs
of properties or working interests with specific areas of potential
mineralization are capitalized at cost pending the determination of a
property's economic viability. Development costs of proven mining properties
not yet producing are capitalized at cost and classified as property, plant
and equipment. Property holding costs are charged to operations during the
period if no significant exploration or development activities are being
conducted on the related properties. Upon commencement of production,
capitalized exploration and development costs will be amortized based on the
estimated proven and probable reserves benefited.
Results of Operations
2002 Compared To 2001. The consolidated net loss for the year ended December
31, 2002 was $3,008,122 or $0.13 per share, an increase of approximately
$2,200,000 from the prior year. Other income for 2002 amounted to $703,000,
which is a decrease of approximately $497,000 from the previous year. Other
income decreased as a result of a reduction in gain on sale of marketable
securities and lower investment yields. Operating expenses for the year
amounted to $3,711,122, which is an increase from the prior year of
approximately $1,660,000. This increase is primarily due to a non-cash
foreign currency loss of $418,258, related to certain assets denominated in
Bolivars. The remaining amount of the increase, approximately $1.2 million,
primarily relates to Venezuela-based costs that in previous years were
capitalized to the Brisas project, but were expensed currently as the primary
focus of the Company was the combined project (see Liquidity and Capital
Resources-Investing).
2001 Compared To 2000. The consolidated net loss for the year ended December
31, 2001 was $851,206 or $0.04 per share, a decrease of approximately
$460,000 from the prior year. Other income for 2001 amounted to $1,199,906,
which is an increase of approximately $316,000 from the previous year. Other
income increased as a result of higher investment yields and gains on sales
of investments. Operating expenses for the year amounted to $2,051,112, which
is a decrease from the prior year of approximately $144,000, due to lower
spending.
Planned corporate expenditures for 2003, excluding the amounts that may be
expended for the completion of the feasibility study on the Brisas property
and other exploration as noted below, are estimated at $3.0 million. Interest
and investment income for 2003 is projected to be approximately $0.6 million.
Liquidity and Capital Resources
Investing. Since its acquisition in 1992, approximately $70 million has been
expended on the Brisas property. These costs include property and mineral
rights, capitalized exploration costs, equipment expenditures, on-going
property management and litigation settlement costs that were expensed in
1994. Amounts recorded as property, plant and equipment (capitalized
exploration costs) include costs associated with the Brisas property,
including personnel and related administrative expenditures incurred in
Venezuela, drilling, preliminary feasibility and related costs, capitalized
interest expense and support costs related to the Brisas property.
Due to the low gold price during recent years, we began evaluating ways in
1999 to improve the economics of the Brisas project by examining a number of
alternatives. We determined that the best alternative was to combine the
Brisas project with the adjacent Cristinas project, thereby realizing
substantial economies of scale. The two projects are contiguous to each other
with our Brisas property to the south and the Cristinas property to the north.
These efforts accelerated in late 2001 into 2002 and, for this reason,
substantive development activities on the Brisas project were limited in 2002
while management aggressively pursued efforts to combine the Brisas and
Cristinas properties into one mining project. These efforts were terminated
in September 2002, when CVG awarded a work contract related to the Cristinas
property to another Company. While management still believes that the best
alternative is the combined project, the Company is proceeding with the
Brisas project on a stand-alone basis.
There were no other significant investing activities in 2002, other than the
purchase and sale of marketable securities, which, on a net basis, totaled
approximately $2 million in purchases of marketable securities.
During 2003 we expect to commence activities on the Brisas property, which
are required to complete a final feasibility study. These additional
activities, which are expected to cost approximately $7 million, may include
mining of a bulk sample, metallurgical testing, final feasibility and
engineering, drilling, geotechnical studies and environmental studies as well
as permitting and on-going maintenance. Although we hope to complete the final
feasibility in the second half of 2004, the timing of these activities are
subject to, among other things, typical environmental and regulatory permits
as well as the scheduling of third party consultants and contractors. As a
result, we cannot say with certainty when the final feasibility study will be
completed. We also expect to perform initial exploratory work on a grass-roots
exploration target, the Choco 5 property, which, if completed, is expected to
cost approximately $0.3 million in 2003.
Development of the Brisas property, as presently proposed in the Brisas
preliminary feasibility study, is estimated to cost $353 million over a
twelve to eighteen month construction period. The ultimate design and cost of
the plant and associated expenditures are subject to the results of a final
feasibility study and would be expected to vary to some degree from original
estimates. Future development of the Brisas property is dependent upon, among
other things, the price of gold and copper, obtaining adequate financing, and
obtaining the appropriate environmental and operating permits. It is unclear,
if and when the development of the Brisas property will commence.
Financing. The Company had no significant financing transactions in 2002. As
of April 30, 2003, the Company held approximately $12 million in cash and
investments. We will be required to seek additional funding in the coming
months in order to maintain our current cash position, which management
believes is in the best interest of the Company. We expect to seek additional
financing concurrently with completing the Brisas work program (as described
above) and the limited exploration program on the Choco 5 property. We have
evaluated a number of financing options presented by our investment bankers
in the last several months, but have no firm commitments to proceed with a
financing. If we are unable to acquire additional funding on acceptable terms
in the short-term, there are no assurances that we will complete as planned,
the final feasibility study on the Brisas project. The Company can make no
assurances that it can obtain necessary financing on acceptable terms, if at
all.
In the near-term management believes that current cash and investment
balances are sufficient to allow the Company fund its activities through
2004. The timing and extent of additional funding depends on a number of
important factors, including the actual timetable of our 2003-2004 work plan,
our assessment of the financial markets, our share price and the price of gold
and copper. Longer term, our plan for significant additional funding
(approximately $350 million) is dependent upon the successful completion of
the final feasibility study, if and when mine development activities on the
Brisas project are commenced, the acquisition of additional properties and
the overall capital requirements of the consolidated group. Management can
provide no assurances that it will be able to acquire the required
significant additional financing that will be needed, if and when,
construction on the Brisas project commences. Failure to raise the required
funds will impede the Company's ability to construct and operate the Brisas
project and would, in the long-term, have a material adverse effect on the
Company.
Operations. Cashflow used by operations for 2002 was approximately $2.2
million, which was an increase over 2001 of approximately $1.3 million. The
increase from 2001 was primarily due to the expensing of costs related to the
Company's Venezuelan operations, which, other than in 2002, were capitalized
as development costs.
Item 6. Directors and Senior Management and Employees
The following sets forth certain information regarding the Company's Board of
Directors and Named Executive Officers. The time periods referred to below
reflect the cumulative period of time the individual has been a Director or
officer of the Company or Gold Reserve Corporation, the predecessor issuer.
Directors serve until the next annual meeting.
Name - Age
Principal Occupation
Director and/or Officer Since
Rockne J. Timm - 57
President, Chief Executive Officer, Director President and Chief Executive
Officer of the Company. Director and President of MGC Ventures, Inc. and
Great Basin Energies, Inc.
Resides: Spokane, Washington.
March 1984
Douglas Belanger - 49
Executive Vice President, Director
Executive Vice President of the Company. Director and Executive
Vice President of MGC Ventures, Inc. and Great Basin Energies, Inc.
Resides: Spokane, Washington.
August 1988
James P. Geyer - 51
Senior Vice President, Director
Senior Vice President of the Company.
Resides: Spokane, Washington.
June 1997
James H. Coleman - 52
Director
Senior Partner of Macleod Dixon LLP of Calgary, Alberta
(counsel to the Company) and Director of various public companies.
Resides: Calgary, Alberta.
February 1994
Patrick D. McChesney 53
Director
President of LMO Test Systems, Inc. (an automated test equipment
manufacturer).
Director of MGC Ventures, Inc. and Great Basin Energies, Inc.
Resides: Spokane, Washington.
August 1988
Chris D. Mikkelsen - 51
Director
Principal in McDirmid, Mikkelsen & Secrest, P.S. (a certified public
accounting firm).
Director of MGC Ventures, Inc. and Great Basin Energies, Inc.
Resides: Spokane, Washington.
June 1997
Jean Charles Potvin - 49
Director
President and Chief Executive Officer of Tiomin Resources Inc.
Resides: Toronto, Ontario
November 1993
Mary E. Smith - 50
Vice President-Administration and Secretary
Vice President-Administration and Secretary of the Company. Vice
President-Administration and Secretary of
MGC Ventures, Inc. and Great Basin Energies, Inc.
Resides: Colbert, Washington.
January 1997
Robert A. McGuinness - 47
Vice President-Finance and Chief Financial Officer
Vice President-Finance and Chief Financial Officer of the Company. Vice
President-Finance and Chief
Financial Officer of MGC Ventures, Inc. and Great Basin Energies, Inc.
Resides: Spokane, Washington.
March 1993
There are no family relationships or arrangements or understandings pursuant
to which any person was
appointed as a Director or member of senior management.
COMPENSATION OF DIRECTORS AND OFFICERS
Executive Compensation
The following table sets forth the compensation paid by the Company to the
Named Executive Officers who served during the year ended December 31, 2002.
(1)Securities
Under
Options/ (2)All
SARs Other
Name and Granted Compensation
Principal Position Year Salary (#) ($)
- ----------------------------------------------------------------------------------
Rockne J. Timm 2002 195,000 696,700 31,144
President and Chief 2001 195,000 696,700 25,500
Executive Officer 2000 195,000 696,700 30,000
2002 175,000 573,955 29,000
A. Douglas Belanger 2001 175,000 573,955 25,500
Executive Vice President 2000 175,000 573,955 30,000
2002 175,000 284,209 29,000
James P. Geyer 2001 175,000 284,209 25,500
Senior Vice President 2000 175,000 284,209 30,000
Mary E. Smith 2002 65,000 106,367 10,697
Vice President-Administration 2001 65,000 106,367 9,750
and Secretary 2000 65,000 106,367 16,250
Robert A. McGuinness 2002 120,000 306,622 19,849
Vice President-Finance 2001 120,000 306,622 18,000
and Chief Financial Officer 2000 120,000 306,622 30,000
Officers as a group (5) 2002 730,000 1,967,853 119,690
2001 730,000 1,967,853 104,250
2000 730,000 1,967,853 136,250
1) Consists of the number of Class A common shares issuable to Named
Executive Officers pursuant to options held at the end of each reported
period.
2) Consists of the dollar value of shares purchased under the Company's KSOP
Plan and allocated to the account of each Named Executive Officer during 2002,
2001, and 2000 respectively as follows: Mr. Timm: 49,387 shares,
44,232 shares, 30,060 shares; Mr. Belanger: 45,988 shares, 44,232 shares,
30,060 shares; Mr. Geyer: 45,988 shares, 44,232 shares, 30,060 shares;
Ms. Smith 16,964 shares, 16,912 shares, 16,283 shares; and Mr.
McGuinness: 31,476 shares, 31,223 shares, 30,060 shares.
Options granted for shares of the Company during the year ended December 31,
2002
No stock options were granted during 2002 to Named Executive Officers.
Aggregated option exercises during the year ended and option values as of
December 31, 2002
No options were exercised during the fiscal year ended December 31, 2002. The
following table sets forth the financial year-end values for options
outstanding to the Named Executive Officers and Directors of the Company.
# of securities $ value of unexercised in
acquired on # of unexercised options/ -the-money options/
exercise Aggregate Value SARs at fiscal year-end SARs at fiscal year-end
Name (#) Realized exercisable (1) exercisable (2)
- ----------------------------------------------------------------------------------------------------------
Rockne J. Timm - - 696,700 $310,498
A. Douglas Belanger - - 573,955 255,854
James P. Geyer - - 284,209 126,905
James H. Coleman - - 216,666 96,011
Patrick D. McChesney - - 142,385 66,109
Chris D. Mikkelsen - - 107,278 48,245
Jean Charles Potvin - - 170,612 75,900
Mary E. Smith - - 106,367 48,314
Robert A. McGuinness - - 306,622 136,692
1) Options range in price of between $0.72 and $1.00 and generally expire
between 2003 and 2005, with the majority expiring in 2005. All options were
exercisable at December 31, 2002.
2) At December 31, 2002, the closing share price on the OTC Market was $1.25.
Director Compensation
Consistent with the Board's intent to have both Directors and management hold
shares of the Company, non-employee Directors, Messrs. Coleman, McChesney,
Mikkelsen and Potvin, were each granted 10,000 Class A Shares in January
2002 for services in 2001; an additional 10,000 Class A Shares were granted
to the aforementioned in December 2002 for service in 2002. The value of each
share on the grant date was US $0.75 and $0.92, respectively.
Macleod Dixon, a law firm in which Mr. Coleman was a senior partner during
2002, billed the Company an aggregate of approximately $59,000 for
professional services and out-of-pocket expenses during the fiscal year
ended December 31, 2002.
Directors of the Company received no additional compensation for serving on
Board committees or for attendance at the Board or committee meetings.
Equity Incentive Plan
The Company presently has one active stock option plan, the 1997 Equity
Incentive Plan (the "Plan") and two predecessor plans that have been
terminated as they relate to future option grants.
The Plan provides for the issuance of up to 2,000,000 Class A common shares,
through the grant of both "incentive stock options" and "non statutory
options" to purchase Class A common shares, stock appreciation rights
("SARs"), and up to 500,000 shares of restricted stock. In addition, options
previously issued under predecessor plans that as a result of forfeiture to
the Company become subject to reissuance shall be re-issued and administered
pursuant to the Plan. As of April 30, 2003, options for the purchase of
226,716 Class A common shares remained available for grant under the Plan and
options for the purchase of 3,368,549 Class A common shares, including
options under the predecessor plans and the Plan, were outstanding. To date,
260,000 shares of restricted stock have been granted from the Plan. No SARs
have been granted to date.
Key employees of the Company and its subsidiaries are eligible to receive
grants under the Plan. An incentive option may be exercised during the
lifetime of the optionee only by the optionee. At such optionees death an
option or any part thereof may only be transferable by such optionees will or
by the laws of descent and distribution. The Board or the Compensation
committee of the Board is responsible for the administration of the Plan.
Options, SARs and restricted stock granted under the Plan are generally
granted at the United States Dollar equivalent of the closing sales price of
the Class A common shares on the day immediately preceding the grant date,
as reported on the Toronto Stock Exchange.
Options to Purchase Securities From the Registrant or Subsidiaries
Gold Reserve Inc.
The following table sets forth the number of Class A common shares of Gold
Reserve Inc. subject to options, which were outstanding at December 31, 2002.
As a group, officers and Directors of the Company (9 persons) held 2,604,794
options to purchase Class A common shares of the Company. No warrants to
purchase Class A common shares were outstanding.
No. of Class A common Exercise
Name shares subject to option Price Expiry date
- -------------------------------------------------------------------------
Rockne J. Timm 486,867 $ 0.72 12/20/2005
209,833 1.00 09/28/2004
A. Douglas Belanger 401,303 0.72 12/20/2005
172,652 1.00 09/28/2004
James P. Geyer 199,473 0.72 12/20/2005
84,736 1.00 09/28/2004
James H. Coleman 149,444 0.72 12/20/2005
67,222 1.00 09/28/2004
Patrick D. McChesney 108,974 0.72 12/20/2005
33,411 1.00 09/28/2004
Chris D. Mikkelsen 76,519 0.72 12/20/2005
30,759 1.00 09/28/2004
Jean Charles Potvin 118,741 0.72 12/20/2005
51,871 1.00 09/28/2004
Mary E. Smith 77,578 0.72 12/20/2005
28,789 1.00 09/28/2004
Robert A. McGuinness 214,415 0.72 12/20/2005
92,207 1.00 09/28/2004
Subsidiaries
Great Basin Energies, Inc. and MGC Ventures, Inc., subsidiaries of the
Company, have a total 1,410,000 and 1,370,000 options to purchase common
shares outstanding, respectively. As a group, officers and Directors of the
Company (9 persons) held 1,240,000 and 1,210,000 options to purchase common
shares of Great Basin Energies, Inc. and MGC Ventures, Inc., respectively.
These options were granted in 1998, are exercisable at $0.03 per share and
expire in 2005. No warrants to purchase such common shares were
outstanding.
Re-pricing of Certain Options Granted to Directors and Officers
of the Company in 2001
The following table sets forth certain re-pricing
information with respect to options held by Named Executive Officers and
Directors of the Company. The re-pricing of these options was approved by
the Board on December 20, 2000 and by the Shareholders on June 8, 2001.
Under the re-pricing program, Named Executive Officers, Directors and other
employees were permitted to exchange certain options with exercise prices in
excess of $0.72. The market price at the date of re-pricing was $0.47 and the
new exercise price of the subject options was set at 150 percent of the
market value or $0.72 per share. In addition, the vesting schedules of all
the re-priced stock options held by Named Executive Officers, Directors and
other employees were modified as follows: fifty-percent of all re-priced
stock options, which were vested prior to the date of the re-pricing, were
no longer vested, or immediately exercisable, but vested 12 months from the
date the re-pricing was approved by the Board. No additional options were
granted during the year.
Exercise Price at Time of Length of Original Option
Securities Under Options/SARs Re-pricing or Amendment Term Remaining at Date of
Name Re-priced Or Amended (#) ($/Security) Re-pricing or Amendment
- --------------------------------------------------------------------------------------------------------
Rockne J. Timm 27,200 1.13 1.7 years
40,000 1.50 3.1 years
50,000 2.59 2.2 years
125,000 3.25 2.3 years
244,667 3.75 2.2 years
A. Douglas Belanger 26,000 1.13 1.7 years
30,000 1.50 3.1 years
65,000 2.59 2.2 years
50,000 3.25 2.3 years
230,303 3.75 2.2 years
James P. Geyer 30,000 1.50 3.1 years
64,209 2.59 2.2 years
5,000 2.88 7.0 years
100,264 3.75 2.2 years
James H. Coleman 15,000 1.28 3.1 years
134,444 3.75 2.2 years
Patrick D. McChesney 27,152 1.13 1.7 years
15,000 1.28 3.1 years
17,278 2.59 2.2 years
49,544 3.75 2.2 years
Chris D. Mikkelsen 15,000 1.28 3.1 years
17,278 2.59 2.2 years
44,241 3.75 2.2 years
Jean Charles Potvin 15,000 1.28 3.1 years
17,278 2.59 2.2 years
89,463 3.75 2.2 years
Robert A. McGuinness 30,000 1.50 3.1 years
68,417 2.59 2.2 years
115,998 3.75 2.2 years
Mary E. Smith 20,000 1.50 3.1 years
34,367 2.59 2.2 years
1,000 2.88 7.0 years
22,211 3.75 2.2 years
KSOP Plan
The Company also maintains a KSOP Plan for the benefit of eligible employees
of the Company. The KSOP Plan consists of two components a salary reduction
component (401(k)) and stock ownership component (ESOP) and is available to
all eligible employees of the Company who have been employed for a period in
excess of one year and who have worked at least 1,000 hours during the year in
which any allocation is to be made.
Contributions to the 401(k) component of the KSOP Plan are limited in each
year to the total amount of salary reduction the employee elects to defer
during the year, which is limited in 2003 to $12,000 ($14,000 limit for
participants who are 50 or more years of age, or who turn 50 during 2003),
special contributions by the Company equal to a percentage of the employee's
compensation during the year, and discretionary contributions by the Company
determined in each year by the Company. Employer allocations are made in the
form of Class A common shares.
Total employer and employee annual contributions to an employee participating
in both the 401(k) and ESOP components of the KSOP Plan are limited (in 2003)
to a maximum of $40,000 ($42,000 limit for participants who are 50 or more
years of age or who turn 50 during 2003). The annual dollar limit is an
aggregate limit, which applies to all contributions made under this plan or
any other cash or deferral arrangements. For Plan year 2003 the Company has
adopted a "Safe Harbor" contribution of 3% of eligible compensation.
Distributions from the KSOP Plan are not permitted before the participating
employee reaches the age of 59, except in the case of death, disability,
termination of employment by the Company or financial hardship. The employee
stock ownership component of the KSOP Plan is qualified under Sections 421
and 423 of the U.S. Internal Revenue Code of 1986, as amended.
The Company allocated contributions to eligible KSOP Plan participants for
plan years 2002, 2001, and 2000 of $153,003, $133,304, and $224,120,
respectively. See footnote 2 of Executive Compensation.
Change of Control Agreements
The Company has entered agreements with each of the Named Executive Officers
and other employees in order to induce them to remain employed by the
Company in the event of a change of control. A change of control generally
means the acquisition, directly or indirectly, of shares of the Company which
is equal to or greater than 25% of the total issued and outstanding voting
shares of the Company; a change in the majority of the Board of Directors
without the approval of Company; or a determination otherwise by the Board
of Directors that there has been an effective change of control of the
Company. In the event of a change in control, the Company has agreed with
each of such Named Executive Officers to, among other things, continue their
employment and, if their employment is terminated within seven months
following the change in control (other than for cause, disability,
retirement or death) or if the Named Executive Officer terminates his
employment for good reason (generally defined as: change in duties, change in
base salary, relocation of place of employment greater than 50 miles, failure
to provide employment or the employee provides the Company with written
notice of election to treat the employment as terminated not before the
first day of the seventh (7th) month following a change of control) at any
time within seven months following the change of control, such individual
will be entitled to receive in a lump-sum, among other things, two times his
annual salary and KSOP contributions, an amount equal to all bonuses
received during the twelve months prior to the change of control,
maintenance of health and insurance benefits for a period of 36 months and
the buy-out of the cash value of any unexercised stock options if elected by
the employee.
BOARD PRACTICES
Based upon the recommendations of a report dated December 1994 (the "Report")
by the TSE Committee on Corporate Governance in Canada, the TSE adopted a
by-law requiring corporations listed on the TSE to disclose their approach
to corporate governance. The Board believes that the Companys general
approach, as summarized below, is substantially consistent with objectives
reflected in the Report.
Mandate and Duties of the Board. The Board has ultimate responsibility for
supervising the conduct of the Companys affairs and the management of its
business. The principal objective of the Board is to protect and enhance
Shareholder value over the long term. Although the Board has delegated to
management responsibility for the day-to-day operations of the Company, the
Board has ultimate responsibility for the stewardship of the Company.
The Boards duties include overseeing strategic planning, reviewing and
assessing principal risks to the Companys business and approving risk
management strategies, supervising and evaluating management, authorizing
significant expenditures, ensuring timely and effective communication with
Shareholders, and overseeing the Companys internal controls and information
systems.
The Boards duties also include planning and monitoring activities of senior
management. In considering and making appointments of senior management, the
Board considers it appropriate, where relevant, to address succession and
planning issues. In appointing senior management, the Board considers as a
necessary requirement of such appointments that such personnel be qualified
to carry out the duties and responsibilities relating to the appointed
positions and thus, apart from monitoring, assessing and providing feedback
to senior management, the Board does not consider it necessary to engage in
specifically training senior management.
The Board met in person once and held several meetings by phone during 2002.
Various matters were considered and approved by written resolution during
the year.
Board Composition. The Reports Guidelines recommend that a majority of the
Directors of the Company be "unrelated" Directors. An "unrelated" Director
is a Director who is independent of management and is free from any interest
and any business or other relationship, which could, or could reasonably be
perceived, to materially interfere with a Directors ability to act with a
view to the best interests of the corporation, other than the interests and
relationships arising from shareholding. The Companys Board presently
consists of seven members. The Board considers that four members are
"unrelated" Directors as defined in the Reports Guidelines. The remaining
three members are currently executive officers of the Company. For the
purposes of this discussion, a "related" Director is a Director who is not
an unrelated Director. All Directors presently serve until the next annual
meeting of the Companys Shareholders or until their successors are elected
and have qualified.
The Board currently believes that seven Directors and the current composition
of the Board represent an appropriate board size for the Company, having
regard to the size and activities of the Company. The current composition of
the Board provides, in the Boards view, an appropriate representation of
senior management and outside Directors.
Board Compensation. The Board reviews from time to time the compensation paid
to the Directors in order to ensure that Directors are being adequately
compensated for the duties performed and the obligations assumed by the
Directors.
Board Committees. The Board has delegated some of its authority to three
committees of the Board. These are the Executive Committee, the Compensation
Committee and the Audit Committee. The Board does not maintain a nominating
committee or an orientation and education program for new Directors as
suggested by the Report or a committee to deal with corporate governance
matters generally. Decisions regarding recruitment of new Directors,
assessment of current Directors, succession planning and other corporate
governance matters are made by the full Board. The Board is of the view that,
given the size of the Company and the fact that a majority of the Board
members are independent of management, these matters can be appropriately
dealt with by the full Board. During 2002, all of the Directors attended,
in person or by phone, 92% of the meetings of the Board and Committees on
which they served.
The Executive Committee, which is comprised of Rockne J. Timm (Chair), A.
Douglas Belanger and James H. Coleman, meets in person or by phone on a
regular basis. The Executive Committee supervises the business affairs of
the Company between Board meetings, except for those matters assigned to
the Compensation and Audit Committees. The Executive Committee is composed
of one unrelated Director (Mr. Coleman) and two related Directors (Messrs.
Timm and Belanger).
The Compensation Committee, which met two times during 2002, in person and by
phone, consists of Chris D. Mikkelsen (Chair) and Jean Charles Potvin, both
of who are unrelated Directors. The Compensation Committee has
responsibility with respect to approving and advising the full Board on
compensation matters involving officers of the Company as well as approving
allocations to the KSOP Plan.
The Audit Committee, which met four times during 2002, in person and by
phone, consists of James H. Coleman (Chair), Patrick D. McChesney and Chris
D. Mikkelsen, all of who are unrelated Directors. The Audit Committee
recommends to the Board a firm of independent certified public accountants to
audit the annual financial statements, discusses with the auditors and
approves in advance the scope of the audit, reviews with the independent
auditors the financial statements and their audit report, reviews
management's administration of the system of internal accounting controls,
and reviews the Company's procedures relating to business ethics. The Board
has delegated review of the quarterly financial statements to the Audit
Committee prior to filing with regulatory agencies. The Audit Committee
reports to the Board on its activities and findings.
Independence From Management. It is the Boards view that the Board operates
and functions independently of management as required. Although the
President and Chief Executive Officer of the Company also serves as Chairman
of the Board, the Board is of the view that this does not impair the Boards
ability to act independently of management. The Boards independence from
management is principally derived from the fact that four out of the seven
Board members are unrelated and not employees of the Company.
Shareholder Communication. The Company communicates regularly with its
Shareholders through annual and quarterly reports, as well as news releases,
regulatory filings and the Companys website. In addition, the executive
officers of the Company are responsible for addressing day-to-day
Shareholder inquiries and other Shareholder communication issues.
Expectations of Management. The Board has delegated to the President and
Chief Executive Officer, and other executives, responsibility for day-to-day
management of the business and affairs of the Company, subject to compliance
with directives and objectives established by the Board from time to time.
The Board relies on management to provide the Board on a timely basis with
information required by the Board to perform its duties.
Outside Advisors. The Company does not have in place any specific procedures
pursuant to which an individual Director may engage the services of an
outside advisor at the expense of the Company. Any requests for the services
of an outside advisor at the expense of the Company would be considered on a
case by case basis by the Board.
Share Ownership by Directors and Management The following table sets forth
the share ownership in the Company by Directors and officers as of April 30,
2003.
Number of Common Shares Percent
Name Beneficially Owned (1) Ownership
- -------------------------------------------------------------------------
Rockne J. Timm (2) (3) 1,510,415 6.3%
A. Douglas Belanger (2) (3) 1,385,301 5.7%
James P. Geyer 456,631 1.9%
James H. Coleman (2) (3) 264,000 1.1%
Patrick D. McChesney (2) (3) 232,262 0.9%
Chris D. Mikkelsen (2) (3) (4) 289,500 1.2%
Jean Charles Potvin 217,434 0.9%
Mary E. Smith(2) (3) 180,380 0.7%
Robert A. McGuinness (2) (3) 478,368 2.0%
(1) Includes for each individual shares issuable pursuant to presently
exercisable options for Class A common shares as of February 28, 2003 or
options exercisable within 60 days of February 28, 2003 as follows: Mr.
Timm, 696,700; Mr. Belanger, 573,955; Mr. Geyer, 284,209; Mr. Coleman,
216,666; Mr. McChesney, 142,385; Mr. Mikkelsen, 107,278; Mr. Potvin,
170,612; Ms. Smith 106,367 and Mr. McGuinness 306,622.
(2) Mr. Timm, Mr. Belanger, Mr. Coleman, Mr. Mikkelsen, Mr. McChesney, Ms.
Smith and Mr. McGuinness are Directors and/or officers of Great Basin
Energies, Inc., which owns the equivalent of 516,720 Class A common shares,
or 2.1% of the outstanding common shares of the Company. The foregoing
individuals own 6.8%, 4.0%, 1.7%, 0.9%, 1.0%, 0.0%, and 0.6%, respectively,
of the outstanding common shares of Great Basin Energies, Inc. and may be
deemed indirectly to have an interest in the Company through their respective
management positions and/or ownership interests in Great Basin Energies, Inc.
Each of the foregoing individuals disclaims any beneficial ownership of the
common shares owned by Great Basin Energies, Inc.
(3) Mr. Timm, Mr. Belanger, Mr. McChesney, Mr. Coleman, Mr. Mikkelsen, Ms.
Smith and Mr. McGuinness are Directors and/or officers of MGC Ventures,
Inc., which owns the equivalent of 276,642 Class A common shares, or 1.2% of
the outstanding common shares of the Company. The foregoing individuals own
6.6%, 6.4%, 2.1%, 2.8%, 1.4%, 0.1%, and 0.9%, respectively, of the
outstanding common shares of MGC Ventures, Inc. and may be deemed indirectly
to have an interest in the Company through their respective management
positions and/or ownership interests in MGC Ventures, Inc. Each of the
foregoing individuals disclaims any beneficial ownership of the common
shares owned by MGC Ventures, Inc.
(4) Excludes 114,552 Class A common shares of which Mr. Mikkelsen is trustee
for the benefit of members of Mr. Timms family. Mr. Mikkelsen disclaims any
beneficial ownership of the 114,552 Class A common shares.
Number of Employees
As of April 30, 2003, the Company employed 8 full and part-time employees in
its Spokane, Washington, office and approximately 30 people in Venezuela, of
which approximately 20 are located at the Brisas property. Day-to-day
activities of Venezuelan operations are managed from Caracas and Puerto
Ordaz.
Item 7. Major Shareholders and Related Party Transactions
CONTROL OF REGISTRANT
We are not directly or indirectly owned or controlled by another corporation
or by any foreign government. No company or government beneficially owns,
directly or indirectly, or exercises control or direction over, shares
carrying more than 5% of the voting rights attached to the Company's issued
Class A Common shares as of the date of this report. Directors and the Named
Executives Officers as a group own 5,014,291 shares (including 2,604,794
shares subject to options exercisable within 60 days), or 18.15% of the total
shares issued. We have no knowledge of any arrangements that may, at a
subsequent date, result in a change in our control.
RELATED PARTY TRANSACTIONS
Interest of Management in Certain Transactions The Directors, officers and
principal shareholders of the Company and associates, affiliates and close
family members of the foregoing have had no material interest, direct or
indirect, in any transaction in which the Company has participated during
the last fiscal year. The following table sets forth maximum indebtedness to
the Company of each Director and Named Executive Officer during the last
fiscal year and the amount outstanding at April 30, 2003:
Amount
Involvement of (1)Largest amount outstanding at
Name and Principal Position issuer or subsidiary outstanding during 2002 April 30, 2003
- -----------------------------------------------------------------------------------------------
Rockne J. Timm-
President, Chief Executive
Officer and Director Lender $23,500 $23,500
James P. Geyer-
Senior Vice President
and Director Lender 18,200 18,200
Robert A. McGuinness-
Vice President-Finance and
Chief Financial Officer Lender (2) 62,500 62,500
1) The indebtedness represents amounts loaned in 1998 to these individuals by
the Company to pay income taxes related to restricted stock grant
transactions. The Company holds promissory notes for each amount loaned at an
interest rate of 4.57%. and are due in full in 2005.
2) Includes an outstanding 1996 loan of $50,000, bearing interest at 5.2%,
secured by a residential second mortgage and is due in 2005.
INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS None of the Directors, officers
of the Company, nor any person or corporation owning more than 10% or any
class of voting securities of the Company, nor any associates or affiliate
of any of them, had or has any material interest in any transaction since
the commencement of the Companys last financial year or in any proposed
transaction which has materially affected or would materially affect the
Company or any of its subsidiaries.
Item 8. Financial Information
Our consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada. For a discussion of the
principal differences between Canadian GAAP and U.S. GAAP, please refer to
note 11 to the consolidated financial statements, included elsewhere in this
annual report. A consolidated balance sheet is presented for fiscal 2002 and
2001 along with consolidated statements of operations, cashflow and changes
in shareholders' equity, which are presented for fiscal 2002, 2001 and 2000.
Reference is made to Item 17 for detailed financial information.
Legal Proceedings
We are unaware of any legal proceedings, either threatened or pending, to
which the Company is or is likely to be a party, or of which any of its
properties or assets is or is likely to be the subject, that are material to
the business and affairs of the Company.
Significant Changes
No significant changes have occurred since the date of the annual financial
statements.
Item 9. The Offer and Listing
Offer and Listing details
The Class A common shares of Gold Reserve Inc. are listed on The Toronto
Stock Exchange ("TSE") under the symbol "GLR.A" and traded on the U.S.
Over-the-Counter Market ("OTC") under the symbol "GLDR." Neither the equity
units nor the underlying securities are listed for trading on any exchange.
Last Six Months TSE OTC
High Low High Low
Canadian Dollars U.S. Dollars
April $2.43 $2.10 $1.64 $1.41
March 2.83 2.22 1.91 1.54
February 2.94 2.25 2.00 1.44
January 2.15 1.77 1.40 1.16
December 2.06 1.37 1.36 0.91
November 1.58 1.31 1.01 0.88
Last Nine Quarters TSE OTC
2003 2003
High Low High Low
First Quarter $2.94 $1.77 $2.00 $1.16
2002 2001 2002 2001
High Low High Low High Low High Low
Canadian Dollars U.S. Dollars
Fourth Quarter $2.06 $1.31 $1.50 $1.05 $1.36 $0.88 $1.00 $0.72
Third Quarter 3.10 1.65 1.70 1.20 2.00 1.07 1.12 0.76
Second Quarter 3.31 1.45 1.85 0.75 2.24 0.91 1.22 0.55
First Quarter 1.86 1.06 1.10 0.68 1.10 0.71 0.81 0.44
Last Five Years TSE OTC
High Low High Low
Canadian Dollars U.S. Dollars
2002 $3.31 $1.06 $2.24 $0.71
2001 1.85 0.68 1.22 0.44
2000 1.46 0.67 1.25 0.41
1999 2.32 1.02 1.56 0.72
1998 5.40 1.38 3.75 0.88
On April 30, 2003, the closing price for a Class A common share of the
Company was Cdn $2.10 per share on the TSE and US $1.48 per share on the OTC.
As of April 30, 2003, there were a total of 22,996,158 Class A common shares
issued and 1,289,980 Class B common shares issued.
The number of holders of Class A and Class B common shares of record on April
30, 2003 was approximately 1,200. Based on recent mailings to shareholders,
the Company believes its common shares are owned beneficially by
approximately 8,000 shareholders. An estimated 75% of the Companys
shareholders are Canadian residents who own approximately 60% of the Companys
outstanding shares, with the remaining outstanding shares owned primarily by
U.S. residents.
Item 10. Additional Information
Memorandum and Articles of Association
Information under this heading is included as a part of the Companys
Registration Statement on Form S-4 (Registration No. 333-68061) filed with
the Commission on November 27, 1998 and incorporated by reference herein. All
documents may be examined at the Companys executive offices located at 926
West Sprague Avenue, Suite 200, Spokane, WA 99201, USA.
Exchange Controls and Other Limitations Affecting Security Holders There are
no Canadian laws that restrict the export or import of capital, including
foreign exchange controls, or that affect the payment of dividends to
non-resident holders, except as described below under the heading "Taxation".
Presently, the Company does not carry on any significant business in Canada.
If, however, in the future the Company carries on a Canadian business, as
defined in the Investment Canada Act, an acquisition of control of the
Company by non-Canadians will be subject to the Investment Canada Act. The
Investment Canada Act provides, among other things, that any non-Canadian, as
defined in the Investment Canada Act, proposing to acquire control of a
Canadian business through the acquisition of voting shares or the acquisition
of all or substantially all the assets of the Canadian business must give
notice in the prescribed form to Investment Canada, an agency of the Canadian
government, and may be required to obtain approval from Investment Canada
prior to implementation of such acquisition. The term "non-Canadian" is
defined in the Investment Canada Act to include an individual who is neither
a citizen nor a permanent resident of Canada, a foreign government or any
corporation or other entity that is not Canadian-controlled.
The Investment Canada Act deems that the acquisition of a majority of the
voting shares of a corporation by a non-Canadian constitutes acquisition of
control of such corporation. The acquisition of one-third or more (but less
than a majority) of the voting shares of a corporation by a non-Canadian is
presumed to be an acquisition of control of the corporation unless it can be
established that the acquirer does not in fact control the corporation
through the ownership of voting shares. The acquisition of less than
one-third of the voting shares of a corporation is deemed not to be an
acquisition of control of the corporation. If an acquisition of control of a
corporation is made in contravention of the Investment Canada Act, a court of
competent jurisdiction may make any order it thinks fit, including requiring
the acquirer to divest its shares of the corporation.
Except as described above, statutes in Canada and the Yukon Territory and the
charter documents of the Company do not restrict the right of non-resident or
foreign owners to hold or vote common shares of the Company.
The Company maintains a Shareholder Rights Plan, which is intended to give
adequate time for shareholders of the Company to properly assess the merits
of a take-over bid without pressure and to allow competing bids to emerge.
The Plan is designed to give the board of directors time to consider
alternatives to allow shareholders to receive full and fair value for their
common shares. One right is issued in respect of each outstanding share. The
rights become exercisable only when a person, including any party related to
it or acting jointly with it, acquires or announces its intention to acquire
20% or more of the Companys outstanding shares without complying with the
permitted bid provisions of the Shareholder Rights Plan. Each right would, on
exercise, entitle the holder, other than the acquiring person and related
persons, to purchase common shares of the Company at a 50% discount to the
market price at the time. Management expects to submit a proposal to
shareholders to reaffirm and extend the term of the Rights Plan to June 30,
2006 at the next annual meeting.
Taxation
Canadian Federal Income Tax Considerations The following is a general summary
of the principal Canadian federal income tax considerations under the Income
Tax Act (Canada) (the "Canadian Act") generally applicable to holders of
Class A and Class B common shares (together, the "common shares") who, for
purposes of the Canadian Act and the Canada-United States Income Tax
Convention (the "Treaty"), as applicable, and at all relevant times: (i)
hold common shares as capital property; (ii) are not resident in Canada or
deemed to be resident in Canada in any taxation year in which they own common
shares; (iii) do not and will not have a fixed base or permanent
establishment in Canada; (iv) do not use and are not deemed to use common
shares in carrying on a business in Canada; and (v) do not hold the common
shares as "designated insurance property" for the purposes of the Canadian
Act (the "Holders"). This summary is not applicable to holders of common
shares that are "financial institutions", as such term is defined for the
purposes of the mark to market rules under the Canadian Act.
Disposition of Common Shares
A Holder will not be subject to tax under the Canadian Act in respect of any
capital gain realized by such Holder on a disposition or deemed disposition
of common shares unless such shares constitute "taxable Canadian property" of
the Holder for the purposes of the Canadian Act. Generally, the Class A common
shares will not constitute taxable Canadian property of a Holder in any given
taxation year in which such Holder owned the shares provided that (a) the
Class A common shares are listed on a prescribed stock exchange within the
meaning of the regulations under the Canadian Act(b) such Holder has not at
any time during the five year period immediately preceding the disposition
owned (or had a right to acquire), alone or together with persons with
whom such Holder does not deal at arm's length, 25% or more of the
issued shares of any class or series of the capital stock of the Company;
and (c) Class A common shares were not received on a conversion of Class B
common shares. As of April 30, 2003, the Class A common shares are listed
on The Toronto Stock Exchange, which is a prescribed stock exchange for
purposes of the regulations under the Canadian Act. The Class B common
shares are currently taxable Canadian property. Even if common shares
owned by a Holder constitute taxable Canadian property of the Holder, the
Treaty provides that Canadian income tax will not be applicable to a
disposition of common shares by a Holder that is a resident of the United
States for the purposes of the Treaty, provided that the value of the common
shares is not derived principally from real property situated in Canada (as
defined in the Treaty). The Company believes the value of its common shares
is not at present derived principally from real property situated in Canada
for these purposes. Provided that the Class A common shares are listed on a
prescribed stock exchange, there are no clearance certificate requirements
imposed by the Canadian Act on a Holder in respect of a disposition of Class
A common shares.
Dividends
Dividends paid or credited on common shares owned by a Holder are subject to
Canadian withholding tax that is levied at a basic rate of 25%, subject to
reduction under any applicable tax treaty. For a Holder that is a resident of
the United States for the purposes of the Treaty, the Canadian withholding tax
rate is reduced under the provisions of the Treaty to 15% generally and is
further reduced to 5% if the Holder is a company that owns at least 10% of
the voting stock of the Company. Under the Treaty, dividends paid to certain
religious, scientific, charitable and other tax-exempt organizations and
certain pension organizations that are resident in, and exempt from tax in,
the United States are exempt from Canadian withholding tax.
U.S. Federal Income Tax Consequences
The following is a summary of certain material U.S. federal income tax
consequences generally applicable to U.S. Holders (as defined below) of the
Companys common shares. This summary does not address tax treatment under
applicable state, local, foreign or other tax laws and generally does not
take account of rules that may apply to U.S. Holders that are subject to
special treatment, including, without limitation: (1) insurance companies,
dealers in securities, certain retirement plans, financial institutions, tax
exempt organizations or holders of securities held as part of a "straddle,"
"hedge" or "conversion transaction" with other investments and taxpayers
whose functional currency is not the United States dollar or (2) shareholders
owning directly, indirectly or by attribution, 10% or more of the Companys
common shares.
For purposes of this discussion, a "U.S. Holder" is any shareholder that is a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, an estate the income of which is subject to
U.S. federal income taxation regardless of its source, or a trust if a U.S.
court is able to exercise primary supervision over its administration and one
or more U.S. persons have authority to control all substantive decisions of
such trust. A "Non-U.S. Holder" is any shareholder other than a U.S. Holder.
The discussion below assumes that the Companys common shares are held as a
capital asset.
United States Federal Income Taxation of Dividends for U.S. Holders. For U.S.
federal income tax purposes, the gross amount of dividends paid by the Company
to U.S. Holders will be treated as foreign source dividend income to the
extent paid out of current or accumulated earnings and profits. These
dividends will not be eligible for the dividends received deduction generally
allowed to U.S. corporate shareholders on dividends from U.S. domestic
corporations. To the extent that an amount received by a U.S. Holder exceeds
the allocable share of current and accumulated earnings and profits, such
excess will be applied first to reduce such U.S. Holder's tax basis in its
shares and then, to the extent in excess of such U.S. Holder's tax basis,
such excess will constitute gain from a deemed sale or exchange of such
shares. For U.S. foreign tax credit purposes, dividends on the shares will
generally constitute "passive income" or, in the case of certain U.S.
Holders, "financial services income." U.S. Holders may elect annually to
either deduct Canadian withholding taxes against their income or to credit
the withholding taxes against their U.S. tax liability, subject to U.S.
foreign tax credit limitation rules.
Classification of the Company as a Controlled Foreign Corporation Under
Section 951(a) of the Code, each "United States shareholder" of a "controlled
foreign corporation" ("CFC") must include in its gross income for U.S. federal
income tax purposes its pro rata share of the CFC's "subpart F income," even
if the subpart F income is not distributed. In addition, gain on the sale of
stock in a CFC realized by a United States shareholder is treated as ordinary
income to the extent of such shareholder's proportionate share of the CFC's
undistributed earnings and profits accumulated during such shareholder's
holding period for the stock. Section 951(b) of the Code defines a United
States shareholder ("U.S. Shareholder") as any U.S. corporation, citizen,
resident or other U.S. person who owns (directly or through certain deemed
ownership rules) 10% or more of the total combined voting power of all
classes of stock of a foreign corporation. In general, a foreign corporation
is treated as a CFC only if such U.S. Shareholders collectively own more than
50% of the total combined voting power or total value of the corporation's
stock. Under these rules the Company does not expect to be a CFC. If the
Company is treated as a CFC, the Company's status as a CFC should have no
adverse effect on any shareholder of the Company that is not a U.S.
Shareholder.
Passive Foreign Investment Company Status Sections 1291 through 1298 of the
Code contain special rules applicable with respect to foreign corporations
that are "passive foreign investment companies" ("PFICs"). A company will be
considered a PFIC if 75% or more of its gross income (including a pro rata
share of the gross income of any company (United States or foreign) in which
the Company is considered to own 25% or more of the shares by value) in a
taxable year is passive income. Alternatively, a company will be considered
to be a PFIC if at least 50% of the assets (averaged over the four quarter
ends for the year) of the Company (including a pro rata share of the assets
of any company of which the Company is considered to own 25% or more of the
shares by value) in a taxable year are held for the production of, or
produce, passive income.
For the year ended December 31, 2002, the Company was considered a PFIC
because it met the income test noted above. As a consequence, each
shareholder who is a U.S. Holder, in the absence of an election by such
holder to treat the Company as a "qualified electing fund" (a "QEF"
election), as discussed below, will, upon certain distributions by the
Company or upon disposition of the Company common shares at a gain, be liable
to pay tax at the highest tax rate on ordinary income in effect for each
period to which the income is allocated plus interest on the tax, as if the
distribution or gain had been recognized ratably over the U.S. Holder holding
period for the Companys common shares while the Company was a PFIC.
Additionally, U.S. Holders who acquired the Companys common shares from
decedents who failed to make a QEF election will generally be denied the
normally available step-up of the income tax basis for such shares to fair
market value at the date of death and, instead, would have a tax basis equal
to the decedent's basis, if lower.
U.S. Holder who own common shares during a period when the Company is a PFIC
will be subject to the foregoing PFIC rules, even if the Company ceases to be
a PFIC, unless they make a QEF election in the first year they held the shares
and the Company was considered a PFIC.
If a U.S. Holder makes a QEF election for the first taxable year that common
shares of the Company were held, distributions and gain will not be taxed as
if recognized ratably over the holders holding period or subject to an
interest charge in the case of a PFIC. Any future gain on the sales of the
Companys shares will be characterized as capital gain and the denial of basis
step-up at death described above will also not apply.
Instead, a U.S. Holder who makes a QEF election will for each taxable year
the Company qualifies as a PFIC include in income a pro rata share of the
ordinary earnings of the Company as ordinary income and a pro rata share of
any net capital gain of the Company as long-term capital gain, subject to a
separate election to defer payment of taxes, which deferral is subject to an
interest charge. The Company, at the request of a U.S. Holder electing to
have the Company treated as a QEF, will comply with the applicable
information reporting requirements.
A U.S. Holder who makes a QEF election for the year in which the Company
first becomes a PFIC (and complies with certain U.S. federal income tax
reporting requirements) should not have any material adverse U.S. federal
income tax consequences because the Company had no ordinary earnings or net
capital gains during the year ended December 31, 2002. In addition, the
Company believes that it will not have any ordinary earnings or net capital
gains in future years in which it may be deemed a PFIC. However, no assurance
can be given as to this expectation. U.S. Holders are urged to consult their
tax advisors concerning the application of the U.S. federal income tax rules
governing PFICs in their particular circumstances.
For taxable years beginning after 1997, a U.S. Holder of certain publicly
traded PFIC stock can elect to mark the stock to market, recognizing as
ordinary income or loss each year an amount equal to the difference as of the
close of the taxable year between the holder's fair market value of the PFIC
stock and the adjusted basis in the PFIC stock. Losses would be allowed only
to the extent of net mark-to-market gain previously included by the U.S.
Holder under the election for prior taxable years. If the mark-to-market
election were made, then the rules set forth above would not apply for
periods covered by the election.
Item 11. Quantitative and Qualitative Disclosures about Market Risk - The
Company does not enter into any hedging transactions or hold any derivative
instruments. The carrying amounts for cash and cash equivalents, marketable
securities, deposits, advances and other, accrued interest and accounts
payable and accrued expenses on the balance sheet approximate fair value
because of the immediate or short-term maturity of these instruments. Fair
value estimates are made at the balance sheet date based on relevant market
information but involve uncertainties and therefore cannot be determined with
precision. In order to limit its market risk, the Company diversifies its cash
and investment holdings into U.S. treasury and agency obligations and major
financial institutions and corporations. The fair value of investments in
marketable securities are disclosed in Note 2 to the Consolidated Financial
Statements.
Item 12. Description of Securities Other Than Equity Securities - Not
applicable
PART II
Item 13. Defaults, Dividends Arrearages and Delinquencies - None
Item 14. Material Modifications to Rights of Security Holders and Use of
Proceeds None
Item 15. Controls and Procedures
The chief executive officer and chief financial officer of the Company, after
evaluating the effectiveness of the Companys disclosure controls and
procedures (as defined in US Exchange Act Rule 13a - 14 (c)) within 90 days
of the date of this report, have concluded that, as of such date, the
Companys disclosure controls and procedures were effective to ensure that
material information relating to the Company was made known to them by others
within the company particularly during the period in which this annual report
and accounts was being prepared.
There were no significant changes in the Companys internal controls or in
other factors that could significantly affect these controls subsequent to
the date the chief executive officer and vice presidentfinance completed
their evaluation, nor were there any significant deficiencies or material
weaknesses in internal control requiring corrective actions.
Item 16. Not Applicable
PART III
Item 17. Financial Statements
Managements Report
To the Shareholders of Gold Reserve Inc.
The accompanying consolidated financial statements of the Company were
prepared by management in accordance with accounting principles generally
accepted in Canada, consistently applied and within the framework of the
summary of significant accounting policies in these consolidated financial
statements. Management is responsible for all information in the annual
report. All financial and operating data in the annual report is consistent,
where appropriate, with that contained in the consolidated financial
statements.
Management is responsible for establishing and maintaining an adequate
internal control structure and procedures for financial reporting. Management
has established and maintains a system of internal accounting control designed
to provide reasonable assurance that assets are safeguarded from loss or
unauthorized use, financial information is reliable and accurate and
transactions are properly recorded and executed in accordance with
managements authorization. This system includes established policies and
procedures, the selection and training of qualified personnel and an
organization providing for appropriate delegation of authority and
segregation of responsibilities.
The Board of Directors discharges its responsibilities for the consolidated
financial statements primarily through the activities of its Audit Committee,
which is composed of three directors, none of whom are members of management.
This Committee meets with management to assure that it is performing its
responsibility to maintain financial controls and systems and to approve the
annual consolidated financial statements of the Company. The Audit Committee
also meets with the independent auditors to discuss the results of their
audit, their review of internal accounting controls and their audit report
prior to submitting the consolidated financial statements to the Board of
Directors for approval.
The consolidated financial statements have been audited on behalf of the
shareholders by the Companys independent auditors, PricewaterhouseCoopers
LLP. The auditors report outlines the scope of their examination and their
opinion on the consolidated financial statements. The auditors have full and
free access to the Audit Committee.
s/ Rockne J. Timm s/ Robert A. McGuinness
President and CEO Vice President-Finance and CFO
April 30, 2003 April 30, 2003
Report of Independent Accountants
To the Shareholders of Gold Reserve Inc.
We have audited the consolidated balance sheets of Gold Reserve Inc. as at
December 31, 2002 and 2001 and the consolidated statements of operations,
cash flows and changes in shareholders equity for each of the years in the
three year period ended December 31, 2002. These financial statements are
the responsibility of the companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada and in the United States. Those standards require that we
plan and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the company as at December
31, 2002 and 2001 and the results of its operations and its cash flows for
each of the years in the three year period ended December 31, 2002 in
accordance with Canadian generally accepted accounting principles.
PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, B.C.
February 14, 2003
GOLD RESERVE INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001
(Expressed in U.S. Dollars)
2002 2001
ASSETS
Cash and cash equivalents $ 1,584,632 $ 5,764,665
Marketable securities 10,945,768 9,006,362
Deposits, advances and other 348,798 350,995
Accrued interest 148,893 52,524
Total current assets 13,028,091 15,174,546
Property, plant and equipment, net 46,144,396 46,197,434
Marketable securities 2,500
Other 670,036 1,178,134
Total assets $ 59,842,523 $ 62,552,614
LIABILITIES
Accounts payable and accrued expenses $ 350,261 $ 320,782
Minority interest in consolidated
subsidiaries 1,080,241 1,062,852
Total liabilities 1,430,502 1,383,634
Commitments
SHAREHOLDERS' EQUITY
Serial preferred stock, without par value
Authorized: Unlimited
Issued: None
Common shares and Equity Units: 102,498,071 102,265,911
Class A common shares, without par value
Authorized: Unlimited
Issued: 2002... 22,996,158
2001... 22,655,122
Outstanding: 2002... 22,702,071
2001... 22,361,035
Equity Units
Issued: 2002... 1,289,980
2001... 1,313,016
Outstanding: 2002... 790,705
2001... 813,741
Less, common shares and
equity units held by affiliates (674,598) (674,598)
Accumulated deficit (43,346,668) (40,338,546)
KSOP debt (64,784) (83,787)
Total shareholders' equity 58,412,021 61,168,980
Total liabilities and shareholders' equity $ 59,842,523 $ 62,552,614
The accompanying notes are an integral part of the consolidated financial
statements.
Expressed in U.S. Dollars
Approved by the Board of Directors:
s/ Chris D. Mikkelsen s/ Patrick D. McChesney
GOLD RESERVE INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2002, 2001 and 2000
2002 2001 2000
Other Income:
Interest income $ 676,550 $ 837,048 $ 1,167,576
Gain (loss) on sale of
marketable securities 26,450 362,858 (283,507)
703,000 1,199,906 884,069
Expenses:
General and administrative 1,329,920 1,205,729 1,321,044
Technical services 1,478,756 349,278 418,938
Corporate communications 279,093 279,628 229,796
Legal and accounting 173,472 93,341 72,036
Foreign currency loss 418,258 97,297 95,922
Interest 12,971
Minority interest in net income
of consolidated subsidiaries 31,623 25,839 44,426
3,711,122 2,051,112 2,195,133
Net loss $ (3,008,122) $ (851,206) $(1,311,064)
Net loss per share-basic and diluted $ (0.13) $ (0.04) $(0.06)
Weighted average common shares
outstanding 23,316,423 22,986,958 22,790,235
The accompanying notes are an integral part of the consolidated financial
statements.
Expressed in U.S. Dollars
GOLD RESERVE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2002, 2001 and 2000
Common Shares
Common Shares and Equity Units Issued Accumulated and Equity Units
Common Shares Equity Units Amount Deficit Held by Affiliates
Balance, December 31, 1999 21,987,672 1,584,966 102,067,298 (38,176,276) (674,598)
Equity units exchanged for
common shares 138,570 (138,570)
Net loss (1,311,064)
Common shares issued 70,000 38,688
Balance, December 31, 2000 22,196,242 1,446,396 102,105,986 (39,487,340) (674,598)
Equity units exchanged for
common shares 133,380 (133,380)
Net loss (851,206)
Common shares issued 325,500 159,925
Balance, December 31, 2001 22,655,122 1,313,016 102,265,911 (40,338,546) (674,598)
Equity units exchanged for
common shares 23,036 (23,036)
Net loss (3,008,122)
Common shares issued 318,000 232,160
Balance, December 31, 2002 22,996,158 1,289,980 $ 102,498,071 $ (43,346,668) $ (674,598)
The accompanying notes are an integral part of the consolidated financial
statements.
Expressed in U.S. Dollars
GOLD RESERVE INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2002, 2001 and 2000
2002 2001 2000
Cash Flow from Operating Activities:
Net loss $ (3,008,122) $ (851,206) $ (1,311,064)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation 58,527 43,534 46,426
Amortization of premium (discount)
on corporate debt securities 107,930 25,777 (32,536)
Foreign currency loss 418,258 97,297 95,922
Minority interest in net income of
consolidated subsidiaries 31,623 25,839 44,426
Net (gain) loss on disposition of marketable securities (26,450) (362,858) 283,507
Shares issued for compensation and KSOP 238,203 141,962 (59,171)
Changes in non-cash working capital:
(Increase) decrease in deposits, advances
and accrued interest (94,172) 19,571 95,476
Increase (decrease) in accounts payable
and accrued expenses 29,479 (14,321) 14,889
Net cash used by operating activities (2,244,724) (874,405) (822,125)
Cash Flow from Investing Activities:
Purchase of marketable securities (11,461,632) (8,335,886) (4,958,408)
Purchase of property, plant and equipment (5,489) (1,420,896) (1,657,902)
Proceeds from the sale and maturity of marketable securities 9,443,246 6,228,289 13,107,312
Other 75,606 55,167 61,713
Net cash provided (used) by investing activities (1,948,269) (3,473,326) 6,552,715
Cash Flow from Financing Activities:
Proceeds from issuance of common shares 12,960 4,285
Net cash provided by financing activities 12,960 4,285
Change in Cash and Cash Equivalents:
Net increase (decrease) in cash and cash equivalents (4,180,033) (4,343,446) 5,730,590
Cash and cash equivalents - beginning of year 5,764,665 10,108,111 4,377,521
Cash and cash equivalents - end of year $ 1,584,632 $ 5,764,665 $ 10,108,111
Supplemental Cash Flow Information
Cash paid during the year for:
Interest $ 12,971
Non-cash investing and financing activities:
Issuance of common shares as compensation $ 85,200 $ 15,000 $ 38,688
Issuance of common shares to KSOP Plan $ 134,000 $ 140,640
The accompanying notes are an integral part of the consolidated financial
statements.
Expressed in U.S. Dollars
1. The Company and Significant Accounting Policies:
The Company. Gold Reserve Inc. (the Company) is a mining company incorporated
in 1998 under the laws of the Yukon Territory, Canada, and is the successor
issuer to Gold Reserve Corporation. The Companys primary mining asset, the
Brisas property, is a gold and copper deposit located in the KM 88 mining
district of the State of Bolivar in southeastern Venezuela. The Company has
no revenue producing mining operations at this time. All amounts shown herein
are expressed in US Dollars unless otherwise noted.
In February 1999, the shareholders of Gold Reserve Corporation approved a
plan of reorganization whereby Gold Reserve Corporation became a subsidiary
of Gold Reserve Inc., the successor issuer (the Reorganization). Generally,
each shareholder of Gold Reserve Corporation received one Gold Reserve Inc.
Class A common share for each common share owned of Gold Reserve Corporation.
After the Reorganization, a shareholder of Gold Reserve Inc. continued to own
an interest in the business, through subsidiary companies, that in aggregate
was essentially the same as before the Reorganization.
Certain U.S. holders of Gold Reserve Corporation elected, for tax reasons, to
receive equity units in lieu of Gold Reserve Inc. Class A common shares. An
equity unit is comprised of one Gold Reserve Inc. Class B common share and
one Gold Reserve Corporation Class B common share. The equity units are
substantially equivalent to a Class A common share and are immediately
convertible into Gold Reserve Inc. Class A common shares upon compliance with
certain procedures. Equity units are not listed for trading on any stock
exchange, but, subject to compliance with applicable federal, provincial and
state securities laws, may be transferred. Unless otherwise noted, general
references to common shares of the Company include Class A common shares and
Class B common shares as a combined group.
Presentation of Financial Statements and Consolidation. The consolidated
financial statements contained herein have been prepared in accordance with
accounting principles generally accepted in Canada, which as described in
Note 11, differ in certain respects from accounting principles generally
accepted in the United States of America.
These consolidated financial statements include the accounts of the Company,
Gold Reserve Corporation, two domestic majority-owned subsidiaries, Great
Basin Energies, Inc. (Great Basin) and MGC Ventures Inc. (MGC Ventures),
seven Venezuelan subsidiaries, and seven Aruban subsidiaries which were
formed to hold the Companys interest in its foreign subsidiaries or for
future transactions. All significant intercompany accounts and transactions
have been eliminated in consolidation. The Companys policy is to consolidate
those subsidiaries where majority control exists and control is other than
temporary.
Cash and Cash Equivalents. The Company considers short-term, highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents for purposes of reporting cash equivalents and cash flows. At
December 31, 2002 and 2001, the Company had approximately $43,000 and $40,000,
respectively, in Venezuelan and offshore banks.
Marketable Securities. Equity securities are carried at the lower of cost and
net realizable value. Corporate debt securities and U.S. treasuries and agency
obligations are carried at amortized cost. If the market value of long-term
investments is lower than the cost and the decline is judged to be other than
temporary, the investment is written down to recognize the loss.
Financial Instruments. The carrying amounts for cash and cash equivalents,
advances and accounts payable and accrued expenses on the balance sheet
approximate fair value because of the immediate or short-term maturity of
these instruments. Fair value estimates are made at the balance sheet date
based on relevant market information but involve uncertainties and therefore
cannot be determined with precision. In order to limit its exposure, the
Company diversifies its cash and investment holdings into U.S. treasury and
agency obligations and major financial institutions and corporations. The
fair values of investments in marketable securities are disclosed in Note 2.
Exploration and Development Costs. Exploration costs incurred in locating
areas of potential mineralization are expensed as incurred. Exploration costs
of properties or working interests with specific areas of potential
mineralization are capitalized at cost pending the determination of a
propertys economic viability. Development costs of proven mining properties
not yet producing are capitalized at cost and classified as property, plant
and equipment. Property holding costs are charged to operations during the
period if no significant exploration or development activities are being
conducted on the related properties. Upon commencement of production,
capitalized exploration and development costs will be amortized based on the
estimated proven and probable reserves benefited. Properties determined to be
impaired or that are abandoned are written-down. Carrying values do not
necessarily reflect present or future values.
Property, Plant and Equipment. Property, plant and equipment are recorded at
the lower of cost less accumulated depreciation. Replacements and major
improvements are capitalized. Maintenance and repairs are charged to expense
as incurred. The cost and accumulated depreciation of assets retired or sold
are removed from the accounts and any resulting gain or loss is reflected in
operations. Depreciation is provided using straight-line and accelerated
methods over the lesser of the useful life or lease term of the related
asset. During the exploration and development phase, depreciation of mining
assets is capitalized. Interest costs incurred during the construction and
development of qualifying assets are capitalized.
The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may
not be recoverable. If the sum of the expected future net cash flows to be
generated from the use or disposition of a long-lived asset (undiscounted and
without interest charges) is less than the carrying amount of the asset, an
impairment loss is recognized.
Foreign Currency. The U.S. Dollar is the Companys functional currency.
Foreign currency amounts are translated into U.S. Dollars using the temporal
method. Accordingly, non-monetary assets and liabilities are translated at
historical rates, monetary assets and liabilities are translated at current
rates and revenue and expense items are translated at average exchange rates
for the month in which they occur, except for depreciation which is
translated at historical rates. Translation gains and losses are included in
operating expenses.
Stock Based Compensation. Effective January 1, 2002, the Company adopted the
requirements of the new Canadian Institute of Chartered Accountants standard
concerning the accounting for stock-based compensation. The Company elected
not to adopt the fair value method of accounting for stock options. No
compensation expense is recognized if the exercise price of the stock options
at date of grant is equal to market value. Grants of stock options to
non-employees and direct awards of stock to employees and non-employees must
be accounted for using the fair value method of accounting. Consideration
paid for shares on exercise of share options is credited to capital stock.
Income Taxes. The Company uses the liability method of accounting for income
taxes. Future tax assets and liabilities are determined based on the
differences between the tax basis of assets and liabilities and those
reported in the financial statements. The future tax assets or liabilities
are calculated using the substantive enacted tax rates expected to apply in
the periods in which the differences are expected to be settled. Future tax
assets are recognized to the extent that they are considered more likely than
not to be realized.
Measurement Uncertainty. The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Substantially all of the Companys investment in property, plant and equipment
represents amounts invested in the Brisas property. Managements capitalization
of exploration and development costs and assumptions regarding the future
recoverability of such costs is subject to the risks and uncertainties of
developing an economic reserve on the Brisas property which is based on
engineering and geological estimates, future gold and copper prices,
estimated plant construction and operating costs and the procurement of all
necessary regulatory permits and approvals. These estimates could change in
the future and this could affect the carrying value and the ultimate
recoverability of the amounts recorded as property and mineral rights and
capitalized exploration and development costs.
The Company operates and files tax returns in a number of jurisdictions. The
preparation of such tax filings require considerable judgment and the use of
assumptions. Accordingly, the amounts reported could vary in the future.
Net Loss Per Share. Net loss per share is computed by dividing net loss by
the weighted average number of common shares outstanding during each year,
which has been reduced by the common shares owned by Great Basin and MGC
Ventures. As of December 31, 2002, 2001 and 2000, there were 3,368,549,
3,421,950 and 3,305,471 shares, respectively, available for issuance pursuant
to the exercise of previously granted share options. Effective January 1,
2001, the Company adopted the recommendations of the Canadian Institute of
Chartered Accountants, CICA 3500, whereby new rules are applied in the
calculation of diluted earnings per share. The revised standard was applied
on a retroactive basis and did not result in any restatement of the Companys
financial statements. The effect of potential issuances of shares under
options would be anti-dilutive, and therefore basic and diluted losses per
share are the same.
Comparative Financial Statements. Certain reclassifications of the 2001 and
2000 consolidated financial statement balances have been made to conform with
the 2002 presentation. These reclassifications had no effect on the net loss
or accumulated deficit as previously reported.
2. Marketable Securities:
Amortized Cost/ Quoted
Carrying Value Market Value
2002
Temporary:
Corporate debt securities $ 9,213,755 $ 9,267,015
Equity securities 1,732,013 1,773,197
Total $ 10,945,768 $ 11,040,212
2001
Temporary:
Corporate debt securities $ 2,533,862 $ 2,562,366
Equity securities 6,472,500 6,631,750
Total $ 9,006,362 $ 9,194,116
Long-term:
Equity securities 2,500 3,250
Total $ 2,500 $ 3,250
Debt securities at December 31, 2002 yield between 3% and 11%.
3. Property, Plant and Equipment:
Accumulated
Cost Depreciation Net
2002
United States
Furniture and office equipment $ 266,056 $ (198,239) $ 67,817
Leasehold improvements 35,633 (27,683) 7,950
$ 301,689 $ (225,922) $ 75,767
Foreign
Property and mineral rights $ 11,252,335 $ 11,252,335
Capitalized exploration costs 34,765,993 34,765,993
Buildings 266,141 $ (224,561) 41,580
Furniture and office equipment 403,187 (394,622) 8,565
Transportation equipment 264,790 (264,790)
Machinery and equipment 310,166 (310,010) 156
47,262,612 (1,193,983) 46,068,629
Total $ 47,564,301 $ (1,419,905) $ 46,144,396
2001
United States
Furniture and office equipment $ 263,322 $ (176,714) $ 86,608
Leasehold improvements 35,633 (20,556) 15,077
298,955 (197,270) 101,685
Foreign
Property and mineral rights $ 11,252,335 $ 11,252,335
Capitalized exploration costs 34,765,993 34,765,993
Buildings 266,141 $ (206,779) 59,362
Furniture and office equipment 400,432 (386,695) 13,737
Transportation equipment 264,790 (262,801) 1,989
Machinery and equipment 310,166 (307,833) 2,333
47,259,857 (1,164,108) 46,095,749
Total $ 47,558,812 $ (1,361,378) $ 46,197,434
4. KSOP Plan:
The KSOP Plan, adopted in 1990 for the benefit of employees, is comprised of
two parts, (1) a salary reduction component, or 401(k), and (2) an employee
share ownership component, or ESOP. Unallocated shares are recorded as a
reduction to shareholders equity. Allocation of common shares to participants
accounts is at the discretion of the Companys board of directors. The Company
allocated contributions to eligible participants for the Plan years 2002,
2001 and 2000 of $153,003, $133,304 and $224,120, respectively. As of
December 31, 2002, 102,739 common shares remain unallocated to plan
participants.
5. Share Option Plan:
The Companys Equity Incentive Plan (the Plan) allows for the granting of up
to 2,000,000 common share purchase options, in addition to any options issued
pursuant to predecessor plans, to officers, directors and key individuals for
terms of up to ten years. The vesting period of options ranges from
immediately to up to three years. Share option transactions for the last
three years are as follows:
2002 2001 2000
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Options outstanding at
beginning of year 3,421,950 $ 0.81 3,305,471 $ 2.23 3,313,240 $ 2.93
Options exercised (18,000) 0.72 (5,500) 0.78
Options canceled (50,901) 1.21 (128,021) 1.25 (92,769) 1.10
Options granted 15,500 1.10 250,000 0.71 85,000 0.68
Options outstanding at
end of year 3,368,549 $ 0.80 3,421,950 $ 0.81 3,305,471 $ 2.23
Options exercisable
at end of year 3,335,217 $ 0.80 3,259,784 $ 0.81 3,080,878 $ 2.26
Price Price Price
Range Range Range
Exercise price
at end of year $ 0.50 - $ 1.50 $ 0.50 - $ 1.50 $ 0.55 - $ 3.75
Exercise price for
exercisable shares $ 0.50 - $ 1.50 $ 0.50 - $ 1.50 $ 0.55 - $ 3.75
As of December 31, 2002, the weighted average remaining contractual life of
total options outstanding was 2.6 years. The weighted average exercise price
of total options outstanding and those options which were exercisable at
December 31, 2002, was $0.80.
In December 2000, the Board approved a resolution amending the exercise price
of certain incentive stock options previously granted under the Plan.
Shareholder and regulatory approval was obtained in June 2001. Under a
program, Executive Officers, Directors and other employees were permitted to
exchange certain options with exercise prices in excess of $0.72. The market
price at the date of re-pricing was $0.47 and the new exercise price of the
subject options was set at 150 percent of the market value or $0.72 per
share. In addition, the vesting schedules of all the re-priced stock options
held by Executive Officers, Directors and other employees were modified as
follows: fifty-percent of all re-priced stock options, which were vested
prior to the date of the re-pricing, were no longer vested, or immediately
exercisable, but vested 12 months from the date the re-pricing was approved
by the Board.
Had the fair value method of accounting been followed in 2002 for the 15,500
stock options granted at a price of $1.10 to certain employees and directors,
$12,993 would have been recorded as compensation expense. Proforma basic and
diluted net loss per share would have been $0.13
6. Related Party Transactions:
MGC Ventures. The President, Executive Vice President, Vice President-Finance
and Vice President-Administration of the Company are also officers and/or
directors and shareholders of MGC Ventures. At December 31, 2002 and 2001,
the Company owned 23,512,074 and 23,304,174 common shares of MGC Ventures
respectively, which represented 63% of its outstanding shares. MGC Ventures
owned 276,642 common shares of the Company at December 31, 2002 and 2001. In
addition, MGC Ventures owned 280,000 common shares of Great Basin at December
31, 2002 and 2001. The Company performs various administrative functions and
sublets a portion of its office space to MGC Ventures for $6,000 per year.
Great Basin. The President, Executive Vice President, Vice President-Finance
and Vice President-Administration of the Company are also officers and/or
directors and shareholders of Great Basin. At December 31, 2002 and 2001, the
Company owned 24,354,521 and 24,210,636 common shares of Great Basin
respectively, which represented 58% of its outstanding shares. Great Basin
owned 516,720 common shares of the Company at December 31, 2002 and 2001.
Great Basin also owned 170,800 common shares of MGC Ventures at December 31,
2002 and 2001. The Company performs various administrative functions and
sublets a portion of its office space to Great Basin for $6,000 per year.
Legal Fees Paid to Director. One of the Companys directors also serves as
Canadian legal counsel for the Company. During 2002, 2001 and 2000, the
Company incurred expenses of approximately $59,000, $22,000 and $16,000,
respectively, for services performed by the director and his firm, in which
he is a senior partner.
Notes Receivable from Officers. As of December 31, 2002 and 2001, the Company
had approximately $109,100 in notes receivable due from officers. The notes
bear interest at between 4.6% and 5.2% and are due in one year.
7. Income Tax:
No income tax benefit has been recorded for the three years ended December
31, 2002. The Companys Venezuelan subsidiaries are subject to Venezuelan
income tax. No income tax has been paid or accrued by the Companys
subsidiaries during 2002, 2001 and 2000. The Company has recorded a valuation
allowance to reflect the estimated amount of the future tax asset which may
not be realized, principally due to the uncertainty of utilization of net
operating losses and other carryforwards prior to expiration. The valuation
allowance for future tax assets may be reduced in the near term if the
Companys estimate of future taxable income changes. The components of the
future income tax assets and liabilities (excluding Venezuela) as of December
31, 2002 and 2001 were as follows:
Future Tax Asset (Liability)
2002 2001
Accounts payable and accrued expenses $ 4,483 $ 5,808
Investment income (56,829) (6,767)
Property, plant and equipment 8,505,089 8,504,863
Total temporary differences 8,452,743 8,503,904
Net operating loss carryforward 4,572,384 3,950,395
Capital loss 1,100
Alternative minimum tax credit 19,871 19,871
Total temporary differences, operating losses
and tax credit carryforwards 13,044,998 12,475,270
Valuation allowance (13,044,998) (12,475,270)
Net deferred tax asset $ - $ -
At December 31, 2002, the Company had the following U.S. and Canadian tax
basis loss carryforwards and tax credits:
U.S. Canadian Expires
Regular tax net operating loss: $ 272,248 $ 247,861 2006
1,650,395 165,878 2007
1,244,312 242,890 2008
688,808 319,711 2009
341,750 2010
645,622 2011
1,424,144 2012
1,386,674 2018
1,621,230 2019
665,664 2020
896,833 2021
1,433,159 2022
$ 12,270,839 $ 976,340
Alternative minimum tax net operating loss: $ 289,523 2006
1,624,454 2007
1,218,023 2008
660,271 2009
304,472 2010
618,845 2011
1,399,529 2012
$ 6,115,117
Alternative minimum tax credit $ 19,871
8. Geographic Segments:
United States Venezuela Consolidated
2002
Other income $ 703,000 $ 703,000
Depreciation 29,847 $ 29,680 58,527
Net loss 1,589,446 1,418,676 3,008,122
Identifiable assets
Property, plant and equipment, net $ 75,767 $ 46,068,629 $ 46,144,396
General corporate assets 12,901,078 797,049 13,698,127
Total identifiable assets $ 12,976,845 $ 46,865,678 $ 59,842,523
2001
Other income $ 1,199,906 $ 1,199,906
Depreciation 43,534 43,534
Net loss 762,142 $ 89,064 851,206
Identifiable assets
Property, plant and equipment, net $ 101,685 $ 46,095,749 $ 46,197,434
General corporate assets 15,040,310 1,314,870 16,355,180
Total identifiable assets $ 15,141,995 $ 47,410,619 $ 62,552,614
2000
Other income $ 884,069 $ 884,069
Depreciation 46,426 46,426
Interest expense 12,971 12,971
Net loss 1,220,797 $ 90,267 1,311,064
Identifiable assets
Property, plant and equipment, net $ 135,247 $ 44,767,122 $ 44,902,369
General corporate assets 16,934,011 1,394,675 18,328,686
Total identifiable assets $ 17,069,258 $ 46,161,797 $ 63,231,055
Revenues and identifiable assets of each segment are those that are directly
identified with those operations.
9. Commitments:
The Company leases office space under a non-cancelable operating lease that
expires in February 2004. Rent expense under the lease during 2002 was
$108,477. Future minimum annual rent payable under the lease is $110,422 in
2003 and $18,452 in 2004.
10. Shareholder Rights Plan:
At the 1997 annual meeting of shareholders, a Shareholder Rights Plan was
voted upon and approved by the shareholders of Gold Reserve Corporation. As
part of the Reorganization described in Note 1, the Shareholder Rights Plan
was assumed by the successor issuer Gold Reserve Inc. The Rights Plan is
intended to give adequate time for shareholders of the Company to properly
assess the merits of a take-over bid without pressure and to allow competing
bids to emerge. The Rights Plan is designed to give the board of directors
time to consider alternatives to allow shareholders to receive full and fair
value for their common shares. One right is issued in respect of each
outstanding share. The rights become exercisable only when a person,
including any party related to it or acting jointly with it, acquires or
announces its intention to acquire 20% or more of the Companys outstanding
shares without complying with the permitted bid provisions of the Rights
Plan. Each right would, on exercise, entitle the holder, other than the
acquiring person and related persons, to purchase common shares of the
Company at a 50% discount to the market price at the time. The current Rights
Plan expires on June 30, 2003. Management expects to submit a proposal to
shareholders to reaffirm and extend the term of the Rights Plan to June 30,
2006 at the next annual meeting.
11. Differences Between Canadian and U.S. GAAP:
The Company prepares its consolidated financial statements in accordance with
generally accepted accounting principles (GAAP) in Canada. The effect of the
principal measurement differences between U.S. and Canadian GAAP are
summarized below. There are no differences between U.S. and Canadian GAAP as
they relate to cash flows.
Canadian GAAP Change U.S. GAAP
2002
Total assets $ 59,842,523 $ 41,184 A $ 59,883,707
Total shareholders' equity 58,412,021 41,184 A 58,453,205
Net loss (3,008,122) (1,162,804)B (4,170,926)
2001
Total assets $ 62,552,614 $ 160,000 A $ 62,712,614
Total shareholders' equity 61,168,980 160,000 A 61,328,980
Net loss (851,206) (851,206)
2000
Total assets $ 63,231,055 $ 97,632 A $ 63,328,687
Total shareholders' equity 61,858,939 97,632 A 61,956,571
Net loss (1,311,064) (1,311,064)
A Under U.S. GAAP, marketable securities would be divided between
held-to-maturity securities and available-for-sale securities. Those
securities classified as available-for-sale would be recorded at market value
and the unrealized gain or loss would be recorded as a separate component of
shareholders equity.
B For US GAAP purposes, the Company accounts for stock-based employee
compensation arrangements using the intrinsic value method prescribed in
Accounting Principles Board (APB) Opinion No.25, Accounting for Stock Issued
to Employees. Under US GAAP, when the exercise price of certain stock options
is amended (the Repricing ), these options are accounted for as variable
compensation from the date of the effective Repricing. Under this method,
following the repricing date, compensation expense is recognized when the
quoted market value of the Companys common shares exceeds the amended
exercise price. Should the quoted market value subsequently decrease, a
recovery of a portion, or all of the previously recognized compensation
expense will be recognized.
12. New standards
Asset Retirement Obligations. The FASB has issued SFAS No. 143, Accounting
for Asset Retirement Obligations. This statement addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. It
requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. The Company is analyzing the impact of SFAS No. 143 and
will adopt the standard on January 1, 2003.
The CICA has approved a new Handbook section, Asset Retirement Obligations,
to replace the current guidance on future removal and site restoration costs
included in the CICA accounting standard 3061, Property, Plant and
Equipment. The standard, which is similar to SFAS 143, is effective for
years beginning on or after January 1, 2004. The standard requires
recognition of a liability at its fair value for the obligation associated
with the retirement of a tangible long-lived asset. A corresponding asset
retirement cost would be added to the carrying amount of the related asset
and amortized to expense over the useful life of the asset. The effect of
adopting this standard, on January 1, 2004, has not yet been determined.
Impairment of Long-Lived Assets. The Accounting Standards Board of the
Canadian Institute of Chartered Accountants (CICA) has issued CICA 3063,
Impairment of Long-Lived Assets. This statement establishes standards for the
recognition, measurement and disclosure of the impairment of non-monetary
long-lived assets, including property, plant and equipment, intangible assets
with finite useful lives, deferred pre-operating costs and long-term prepaid
assets. The Company does not expect that the implementation of this new
standard will have a material impact on its consolidated financial position
or results of operations.
Hedging Transactions. The CICA has issued Accounting Guideline 13, Hedging
Relationships, (AcG 13) which will be effective for years beginning on or
after July 1, 2003. AcG 13 addresses the identification, designation,
documentation, and effectiveness of hedging transactions for the purposes of
applying hedge accounting. It also establishes conditions for applying or
discontinuing hedge accounting. Under the new guideline, the Company will be
required to document its hedging transactions and explicitly demonstrate that
the hedges are sufficiently effective in order to continue accrual accounting
for positions hedged with derivatives. The effect of adopting this guideline
has not yet been determined.
Accounting for Costs Associated with Exit or Disposal Activities. The FASB
has issued SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. Under this standard, exit costs and restructuring
liabilities generally will be recognized only when incurred. SFAS No. 146 is
effective for exit or disposal activities initiated after December 31, 2002.
FIN 45 - Guarantors Accounting and Disclosure Requirements for Guarantees.
The FASB has issued Financial Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57 and
107, (FIN 45). FIN 45 requires that, effective for years beginning after
September 15, 2002, a guarantor recognize, at the inception of a guarantee, a
liability for the fair value of the obligations it has undertaken in issuing
the guarantee. The impact of adopting FIN 45, on January 1, 2003, is not
anticipated to be material.
AcG 14 - Disclosure of Guarantees. The CICA has issued Accounting Guideline
14, Disclosure of Guarantees, (AcG 14) which is effective for periods
beginning on or after January 1, 2003. AcG 14 requires disclosure of key
information about certain types of guarantee contracts that require payments
contingent on specified types of future events. The Company will adopt this
Guideline in the first quarter of 2003.
ITEM 18. Financial Statements - Not Applicable
ITEM 19. Financial Statements and Exhibits
Index to Consolidated Financial Statements
Management's Report
Report of Independent Accountants
Consolidated Balance Sheets
December 31, 2002 and 2001
Consolidated Statements of Operations
for the years ended December 31, 2002, 2001 and 2000
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows
for the years ended December 31, 2002, 2001 and 2000
Notes to Consolidated Financial Statements
Exhibits. The following exhibits are filed as part of this report.
Exhibit
Number Exhibit
4.0 Change in Control Agreement
10.0 Consent of PricewaterhouseCoopers LLP
10.1 Consent of Behre Dolbear & Company, Inc.
99.0 Certificate of Gold Reserve Inc. Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.1 Certificate of Gold Reserve Inc. Vice President-Finance pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
The following exhibits previously filed are incorporated by reference.
Exhibit
Number Exhibit
1.0 Restated Articles of Incorporation of the Company. Filed as Exhibit
3.1 to the Proxy Statement/Joint Prospectus included as a part of
the Company's Registration Statement on Form S-4 (Registration No.
333-68061) filed with the Commission on November 27, 1998 and
incorporated by reference herein.
1.1 Bylaws of the Company. Filed as Exhibit3.2 to the Proxy Statement/
Joint Prospectus included as a part of the Companys Registration
Statement on Form S-4 (Registration No. 333-68061) filed with the
Commission on November 27, 1998 and incorporated by reference
herein.
2.0 Agreement and Plan of Merger, dated as of October 5, 1998, by and
among Gold Reserve Corporation (predecessor issuer), Gold Reserve
Inc. (successor issuer) and GRMerger Corp. Filed as Annex I to the
Proxy Statement/Joint Prospectus included as a part of the
Company's Registration Statement on Form S-4 (Registration No.
333-68061) filed with the Commission on November 27, 1998 and
incorporated by reference herein.
2.1 Exchange Agreement by and among Gold Reserve Corporation, the
Company, TranSecurities International, Inc. and Holders of Unit
Shares, dated November 17, 1998. Filed as Exhibit4.1 to the Proxy
Statement/Joint Prospectus included as a part of the Companys
Registration Statement on Form S-4 (Registration No. 333-68061)
filed with the Commission on November 27, 1998 and incorporated by
reference herein.
2.2 Rights Agreement, dated as of October 5, 1998, between the Company
and Montreal Trust Company of Canada. Filed as Exhibit4.3 to the
Proxy Statement/Joint Prospectus included as a part of the
Company's Registration Statement on Form S-4 (Registration No.
333-68061) filed with the Commission on November 27, 1998 and
incorporated by reference herein.
2.3 Form of Certificate for the Companys Class A common shares. Filed as
Exhibit 4.4 to the Proxy Statement/Joint Prospectus included as a
part of the Companys Registration Statement on Form S-4
(Registration No. 333-68061)filed with the Commission on November
27, 1998 and incorporated by reference herein.
2.4 Form of Certificate for the Unit Share. Filed as Exhibit 4.5 to the
Proxy Statement/Joint Prospectus included as a part of the Company's
Registration Statement on Form S-4 (Registration No. 333-68061)
filed with the Commission on November 27, 1998 and incorporated by
reference herein.
8.0 Subsidiaries of Registrant. Filed as Exhibit 21 to the Proxy
Statement/Joint Prospectus included as a part of the Company's
Registration Statement on Form S-4 (Registration No. 333-68061)
filed with the Commission on November 27, 1998 and incorporated
by reference herein.
Signatures
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GOLD RESERVE INC.
By:
Rockne J. Timm, its Chairman of the Board,
President and Chief Executive Officer
May 15, 2003
By:
Robert A. McGuinness, its Vice President of Finance
and Chief Financial Officer, its Principal Financial
and Accounting Officer
May 15, 2003
Glossary of Significant Terms
Certain terms used throughout this report are defined below.
alluvial... 1)Used to identify unconsolidated or clay-like materials
deposited over time by moving water. 2) Used to describe
a strata of material that constitutes a concession, i.e.
relating to the Brisas alluvial concession.
andesite... A volcanic rock of intermediate composition. It is
fine-grained and contains 55% to 60% silica.
assay... An analysis performed on a rock sample to determine its
metal content.
ball mill... A steel cylinder partially filled with steel balls into
which crushed ore is fed. The ball mill is rotated,
causing the balls to cascade and grind the ore.
batholith... A mass of igneous rock with a surface area greater than
100 square kilometers.
Bolivar... The basic monetary unit of the Republic of Venezuela. As
of April 30, 2003, 1,600 Bolivares equaled one U.S.
Dollar.
breccia... A clastic rock in which angular fragments are surrounded
by a fine-grained matrix or minerals cement.
BRISAS... Compania Aurifera Brisas del Cuyuni, C.A., a Venezuelan
corporation and the subsidiary of the Company that owns
the Brisas property.
Brisas alluvial
concession... The mining title granted to BRISAS by the MEM to explore
and commercially develop and exploit gold contained in
alluvial material on the Brisas property.
Brisas hardrock
concession... The mining title granted to BRISAS by the MEM to
commercially develop and mine gold, copper and
molybdenum contained in the veta or vein material on the
Brisas property.
Brisas property... The Brisas property consists of the Brisas alluvial
concession, the Brisas hardrock concession beneath the
alluvial concession, applications in process for other
mineralization (primarily nominal values of copper and
silver) contained in these concessions, mineralization
(primarily gold, copper and molybdenum) on small land
parcels contiguous to the existing concessions and
approval of concession transfers. In addition, the
property includes various work contracts granted by
Corporation Venezolana de Guayana (CVG). The term Brisas
property is used interchangeably with Brisas project.
CESL... Cominco Engineering Services Limited (CESL) on-site
copper processing technology.
Choco 5 Property... Grass-roots exploration target leased from Minerven, a
subsidiary of CVG.
concentrate... A finely ground product of the milling process,
containing a high percentage of valuable metal, which is
typically sent to a smelter for further processing.
concession... A privilege, license or mining title granted by the MEM
to explore and, if warranted, produce minerals from a
specified property.
Corporacin
Venezolana de
Guayana (CVG)... A Venezuelan government-owned entity formed to foster
industrial development and to explore and develop mineral
resources in the Guayana region of Venezuela, including
the State of Bolivar.
Cristinas... Gold and copper property (Cristinas 4, 5, 6 and 7) which
is north of and contiguous to the Brisas property.
cyanidation... A method of extracting gold or silver from a crushed or
ground ore by dissolving it in a weak cyanide solution.
dilution... Waste rock that is, by necessity, removed along with the
ore in the mining process, subsequently lowering the
average grade of the ore processed.
dip... The angle at which a vein, structure or rock bed is
inclined from the horizontal as measured at right angles
to the strike.
environmental impact
statement (EIS)... A report, compiled prior to a production decision, that
examines the effects of proposed mining activities on the
natural surroundings.
feasibility study... A comprehensive study of a deposit in which all
geological, engineering, operating, economic and other
relevant factors are considered in sufficient detail that
it could reasonably serve as the basis for a final
decision by a financial institution to finance the
development of the deposit for mineral production.
flotation... A process for concentrating minerals based on the
selective adhesion of certain minerals to air bubbles in
a mixture of water and ground up ore. When the right
chemicals are added to a frothy water bath of ore that has
been ground to the consistency of talcum powder, the
minerals will float to the surface. The metal rich
flotation concentrate is then skimmed off the surface.
gold equivalent... Gross value of copper at a stated value per pound divided
by the gross price of gold at a stated value per ounce.
Gold Reserve de
Venezuela
C.A. (GLDRV)... A Venezuelan corporation and a foreign subsidiary of
the Company. GLDRV was organized in September 1992 to
manage the exploration and future development activities
on the Brisas property.
grade... The relative quantity or the percentage of ore-mineral
content in a mineralized body, i.e. grams of gold per
tonne or percent of copper per tonne.
gravity separation... Recovery of gold from crushed rock or gravel using golds
high specific gravity to separate it from the lighter
material.
hardrock... Solid rock underlying an alluvial deposit. Also referred
to as bedrock.
hectare... A metric measurement of area equivalent to 10,000 square
meters or 2.47 acres.
igneous... Rocks formed by the cooling and solidifying of magma.
Imataca Forest
Reserve... A 3.6 million hectare area of tropical forest located in
the State of Bolivar in southeastern Venezuela that was
set aside as a region for forest exploitation by the
Venezuelan government in the 1960s. The Companys Brisas
property is located in an area within the reserve, which
was previously designated for mining activities.
indicated mineral
resource... That part of a mineral resource for which quantity, grade
or quality, densities, shape and physical characteristics,
can be estimated with a level of confidence sufficient to
allow the appropriate application of technical and
economic parameters, to support mine planning and
evaluation of the economic viability of the deposit. The
estimate is based on detailed and reliable exploration and
testing information gathered through appropriate
techniques from locations such as outcrops, trenches,
pits, workings and drill holes that are spaced closely
enough for geological and grade continuity to be
reasonably assumed.
inferred mineral
resource... That part of a mineral resource for which quantity and
grade or quality can be estimated on the basis of
geological evidence and limited sampling and reasonably
assumed, but not verified, geological and grade
continuity. The estimate is based on limited information
and sampling gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and
drill holes.
intrusive... Rock which while molten penetrated into or between other
rocks, but solidified before reaching the surface.
Kilometer 88
mining district
(KM 88)... An area in the State of Bolivar in southeastern Venezuela
containing significant alluvial and hardrock deposits. The
Company's Brisas property is located in this district.
measured mineral
resource... That part of a mineral resource for which quantity, grade
or quality, densities, shape, physical characteristics are
so well established that they can be estimated with
confidence sufficient to allow the appropriate application
of technical and economic parameters, to support
production planning and evaluation of the economic
viability of the deposit. The estimate is based on
detailed and reliable exploration, sampling and testing
information gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and
drill holes that are spaced closely enough to confirm both
geological and grade continuity.
metamorphism... Rock of sedimentary or igneous origin that has been
altered by high temperature and/or pressure.
mill... A processing plant where ore is crushed and ground,
usually to fine powder, and the metals are extracted by
physical and/or chemical means. Output from a mill usually
requires further processing in a smelter or refinery to
produce pure metal.
mineral... A naturally occurring homogeneous substance having fixed
physical properties and chemical composition.
mineral resource... A concentration or occurrence of natural, solid, inorganic
or fossilized organic material in or on the Earths crust
in such form and quantity and of such grade or quality
that it has reasonable prospects for economic extraction.
The location, quantity, grade, geological characteristics
and continuity of a Mineral Resource are known, estimated
or interpreted from specific geologic evidence and
knowledge.
mineral reserve... The economically mineable part of a Measured or Indicated
Mineral Resource demonstrated by at least a preliminary
feasibility study. This study must include adequate
information on mining, processing, metallurgical,
economic and other relevant factors that demonstrate, at
the time of reporting, that economic extraction can be
justified. A Mineral Reserve includes diluting materials
and allowances for losses that may occur when material is
mined.
mineralization... The presence of minerals in a specific area or geological
formation.
Ministry of the
Environment
and Natural
Resources (MARN)... Venezuelan governmental entity, which exercises
supervisory jurisdiction over the environment.
Ministry of
Energy
and Mines (MEM)... Venezuelan governmental entity, which exercises
supervisory jurisdiction over the Brisas property and
the Company's activities thereon.
molybdenum... An element (Mo), usually in the form of molybdenite,
primarily used in alloys and lubricants.
open pit... A mine that is entirely on surface. Also referred to as
an open-cut or open-cast mine.
Precambrian... All geologic time before 570 million years ago.
preliminary
feasibility study... A comprehensive study of the viability of a mineral
project that has advanced to a stage where the mining
method, in the case of underground mining, or the pit
configuration, in the case of an open pit, has been
established, and which,if an effective method of mineral
processing has been determined, includes a financial
analysis based on reasonable assumptions of technical,
engineering, operating, economic factors and the
evaluation of other relevant factors which are sufficient
for a qualified person, acting reasonably, to determine
if all or part of the mineral resource may be classified
as a mineral reserve.
probable mineral
reserve... The economically mineable part of an indicated mineral
reserve, and in some circumstances a measured mineral
resource demonstrated by at least a preliminary
feasibility study. This study mustinclude adequate
information on mining, processing, metallurgical,
economic, and other relevant factors that demonstrate,
at the time of reporting, that economic extraction can
be justified.
Proterozoic... That part of the Precambrian time represented by rocks in
which traces of life appear or the younger part of
Precambrian time.
proven mineral
reserve... The economically mineable part of an indicated mineral
reserve, and in some circumstances a measured mineral
resource demonstrated by at least a preliminary
feasibility study. This study must include adequate
information on mining, processing, metallurgical,
economic, and other relevant factors that demonstrate,
at the time of reporting, that economic extraction is
justified.
reclamation... The restoration of a site after mining or exploration
activity is completed.
recovery... The percentage of valuable metal in the ore that is
recovered by metallurgical treatment.
stock... An igneous body smaller than a batholith with a
subcircular section.
stratabound... Used to describe mineral deposits that are restricted to
a single stratagraphic unit.
strataform Mineral deposits whose geometry is similar to that of its
host rock.
strike... The direction, or bearing from true north, of a vein or
rock formation measured along a horizontal line on the
surface of the vein or rock.
strip ratio... The tonnage of non-mineralized waste material removed to
allow the mining of one tonne of ore in an open pit. Also
referred to as waste-to-ore ratio.
tailings... The material removed from the milling circuit after
separation of the valuable metals.
troy ounce... Unit of weight measurement used for all precious metals.
The familiar 16 ounce avoirdupois pound equals 14.583
troy ounces.
vein... A sheet-like or tabular discordant mineralized body formed
by complete or partial infilling of a fracture or fault
within a rock.
veta... 1) Used to describe veins of mineralization and/or deeper,
hardrock mineralization, 2) used to describe a strata of
material that constitutes a concession, i.e. relating to
the Brisas hardrock concession.
CONVERSION FACTORS: 1 Troy ounce = 31.1034 Grams
1 Tonne = 1.1023 Short tons or 2204.6 Pounds
1 Hectare = 2.4711 Acres
1 Kilometer = 0.6214 Miles
1 Meter = 3.28084 Feet
SYMBOLS: Au = Gold
Cu = Copper
gpt = Grams per tonne
kt = Thousand tonnes
Au Eq = Gold equivalent
Exhibit 4.0 - Change Of Control Agreement
This Agreement is made effective the 8th day of August 2002. Among:
GOLD RESERVE CORPORATION, a Montana corporation, with offices at 926 West
Sprague Avenue, Suite 200, Spokane, Washington 99201 (hereinafter referred to
as the "Company")
and
EXECUTIVE, an individual resident in Spokane, Washington or his/her estate in
the event of death (hereinafter referred to as the "Employee")
and
GOLD RESERVE INC., a Yukon corporation, with offices at 926 West Sprague
Avenue, Suite 200, Spokane, Washington 99201 (hereinafter referred to as
"GRI")
WHEREAS
The Employee is presently employed by the Company as "Job Title" and the
Company is desirous of retaining the continued services of the Employee in
that capacity; and
The Employee has agreed to continue his or her employment with the Company as
"Job Title" in accordance with the provisions of this Agreement;
The Company is a wholly-owned subsidiary of GRI and GRI has agreed to
guarantee the obligations of the Company hereunder;
NOW THEREFORE, for good and valuable consideration, the parties hereto agree
as follows:
1. Definitions
In addition to the terms defined elsewhere in this Agreement, the following
terms shall have the following meanings:
A). "acting jointly or in concert" has the meaning given to such phrase by
Section91(1) of the Securities Act (Ontario);
B). "Board of Directors" means the Board of Directors of the Parent Company,
and "Director" means a member of the Board of Directors;
C). "Change of Control" means and shall be deemed to have occurred upon one
or more of the following:
1). the acquisition hereafter, directly or indirectly and by any means
whatsoever, in one transaction or a series of transactions, by any person or
by a group of persons acting jointly or in concert, of that number of voting
shares of the Parent Company which is equal to or greater than 25% of the
total issued and outstanding voting shares of the Parent Company immediately
after such acquisition.
An acquisition shall exclude any single or series of issuances or sales of
shares of the Parent Company by way of prospectus or private placement after
the date of this Agreement which were approved by the Board of Directors; or
2). the election hereafter at a meeting of the Parent Company's shareholders,
as Directors of the Parent Company, of a number of persons, who were not
included in the slate for election as Directors proposed to the Parent
Company's shareholders by the Parent Company's prior Board of Directors, and
who represent a majority of the Board of Directors, or the appointment
hereafter as Directors of the Parent Company, of a number of persons which
represent a majority of the Board of Directors, nominated by any holder of
voting shares of the Parent Company or by any group of holders of voting
shares of the Parent Company acting jointly or in concert and not approved by
the Parent Company's prior Board of Directors; or
3). a determination hereafter by the Board of Directors that there has been a
change, whether by way of a change in the holding of the voting shares of the
Parent Company, in the ownership of the Parent Company's assets or by any
other means, as a result of which any person or any group of persons acting
jointly or in concert is in a position to exercise effective control of the
Parent Company;
D). COBRA means the Consolidated Omnibus Budget Reconciliation Act of 1985;
E). ERISA means the Employee Retirement Income Security Act of 1974;
F). "Parent Company" means GRI, and includes GRI's successors, whether by
way of merger, amalgamation or otherwise;
G). KSOP Plan is a shareholder approved retirement plan consisting of two
components a salary reduction component (401(k)) and stock ownership
component (ESOP);
H). "person" includes an individual, a partnership, a corporation and any
other entity or association;
I). "Termination" means:
1). the Employee's employment with the Company is terminated by the Company
after a Change of Control; or
2). the Employee provides the Company with written notice of election to
treat the employment as terminated for Good Reason, after a Change of Control;
a. For purposes of this Agreement, Good Reason shall mean, without Employees
express written consent, any of the following:
i. the assignment to Employee of any duties inconsistent with Employees
responsibilities from those in effect immediately prior to a Change of
Control;
ii. a reduction by the Company in Employees annual base salary as in effect
on the date hereof or as the same may be increased from time to time;
iii. the relocation of the office of the Company where Employee is employed
at the time of a Change of Control (the COC Location) to a location more than
fifty (50) miles away from the COC Location or the Companys requiring Employee
to be based more than fifty (50) miles away from the COC Location (except for
required travel on the Companys business to an extent substantially
consistent with Employees business travel obligations just prior to the
Change of Control);
iv. the failure by the Company to continue to provide Employee with benefits
at least as favorable to those enjoyed by Employee under any of the Companys
other benefits (Appendix A) in which Employee was participating at the time
of the Change of Control, the taking of any action by the Company which
would directly or indirectly materially reduce any of such benefits or
deprive Employee of any material fringe benefit enjoyed by Employee at the
time of the Change of Control, or the failure by the Company to provide
Employee with the number of paid vacation days to which Employee is entitled
to at the time of the Change of Control; and, if the business of the Company
for which Employees services are principally performed is sold at any time
after a Change of Control and the purchaser of such business fails to agree
to provide Employee with the same or a comparable position, duties, salary
and benefits as provided to Employee by the Company immediately prior to the
Change of Control.
or
3). the Employee provides the Company with written notice of election to
treat the employment as terminated not before the first day of the seventh
(7th) month following a Change of Control; or
4). the Employee dies following a Change of Control.
J). "Termination Date" means:
1). the date that the Employee's employment with the Company is terminated by
the Company after a Change in Control (as described in I (1); or
2). the date that the Employee provides to the Company written notice of
election to treat the employment as terminated after a Change of Control (as
described in I (2) or I (3)); or
3). the date the Company is notified of the Employees death after a Change of
Control.
(K). Termination for Cause means:
1). The willful and continued failure by the Employee to perform his or her
duties in breach of a fiduciary duty imposed by his or her current position
with the Company; or
2). the willful engaging by the Employee of misconduct which is materially
injurious to the Company, monetarily of otherwise; or
3). the willful violation by the Employee of the provisions of this
Agreement; or
4). for any other Cause as determined in accordance with the laws of the
State of Washington.
L). "this Agreement" and terms such as "hereof", "herein", "hereunder" and
similar expressions mean this Agreement, as amended, supplemented or modified
in writing from time to time.
2. Change of Control
In the event that a Change of Control and Termination occurs, then the
Company agrees to:
A). pay to the Employee within fifteen (15) days following the Termination
Date, a settlement payment equal to the total of:
1). an amount equal to 24 months salary (which shall be deemed to be equal to
the monthly salary to which the Employee was entitled to immediately prior to
the Change of Control multiplied by 24), together with any amounts required
to be paid in accordance with the Companys policies or by law regarding
earned and unpaid vacation time as of the date of termination; plus
2). an amount equal to 2 years of the Companys KSOP contribution based on the
Employees annual salary immediately prior to the Change of Control and the
maximum allowable allocation pursuant to ERISA Law; plus
3). an amount equal to the aggregate of all bonuses which the Employee
received from the Company during the 12 months immediately prior to the
Change of Control; and
B). make available to the Employee and the Employee's immediate family all
medical, dental, disability and life insurance benefits (as such benefits
were provided immediately prior to the Change of Control) for a period of 36
months following the Termination Date. In the event the benefits plan (or any
part) as provided (Appendix A) immediately prior to the Change of Control
ceases to exist during the 36-month period subsequent to the Termination
Date, the Company will compensate the Employee by paying to the Employee
(within 15 days) an amount equal to two times the monthly premium for the
remaining months of the 36 month period, and, if applicable, two (2) times
the annual premium for any unpaid premiums in the 36 month period. Regarding
the medical plan (part of the benefits) if it remains in effect for the time
period COBRA is available, the Company is only obligated to pay Employee the
applicable premium for medical coverage. After any COBRA coverage expires,
the Company is obligated to pay to Employee (in a lump sum within 15 days)
two times the monthly premiums for the remaining months of the 36 month
period; and
C). at the election of the Employee with respect to any Share Purchase
Option Agreements between GRI and Employee, make a cash payment in respect of
each share subject to such options equal to the amount by which the weighted
average trading price of the Companys shares for the last five days preceding
the date the Employee makes the election exceeds the applicable option
exercise price. Such payment shall be made to the Employee by the Company no
later than fifteen (15) days following the Employees election under this
section.
3. Release
In consideration of the payment to the Employee of the aforesaid amounts and
the additional provisions of this Agreement the Employee agrees to tender an
immediate resignation from all positions with the Company, including
membership of the Board of Directors, if applicable, in a form satisfactory
to the Company acting reasonably and forever release and discharge the
Company from any and all obligations to pay any further amounts or benefits
to the Employee with respect to the termination of the Employee's employment
with the Company.
4. Duty to Mitigate
The Employee shall be under no duty to mitigate any losses with respect to
the termination of the Employees employment with the Company as a result of
the Termination.
5. Subsequent Employment
In the event of a Termination, the Employee shall not be bound in any matter
whatsoever to rebate to the Company or to forgive any claim against the
Company with respect to any amounts or benefits payable hereunder in the
event of subsequent reemployment in any manner whatsoever.
6. Guarantee of GRI
GRI irrevocably and unconditionally guarantees to the Employee the prompt and
complete payment and performance when due of all amounts payable by and all
other obligations of the Company under this Agreement (collectively, the
"Obligations"). If the Company fails to pay or perform any Obligation for any
reason, GRI will pay or cause to be performed such Obligation promptly upon
the Employee's demand therefore and without the Employee having to make prior
demand on the Company. In addition, GRI acknowledges, covenants and agrees
that:
A). GRI's obligations hereunder shall remain in force until all Obligations
have been paid or performed, and shall not be released or discharged
notwithstanding (i)any changes in the terms of the Employee's employment with
the Company, including, without limitation, any change in salary, bonuses or
benefits (all of which may be amended, altered and added to without notice to
or consent of GRI); (ii)any Change of Control; (iii)the waiver by the Employee
of the Company's performance of any Obligation, the extension of time for
payment or performance of any Obligation or the amendment, alteration,
compromise, extension or renewal of any Obligation; (iv)any delay or failure
by the Employee exercising any right or remedy; (v)the voluntary or
involuntary liquidation, dissolution, sale or other disposition of all or
substantially all of the assets and liabilities or the voluntary or
involuntary receivership, bankruptcy, assignment for the benefit to
creditors, reorganization, or other similar proceedings affecting the Company
or the dissaffirmance or rejection of the Obligations in any such proceedings
or otherwise; or (vi)any merger, amalgamation, arrangement, consolidation or
other reorganization to which the Company, GRI or any related entity is a
party, or any direct or indirect sale or disposition of GRI's ownership
interest in the Company;
B). GRI waives notice of demand or presentment for payment to the Company or
the making of any protest, notice of the amount of the Obligations
outstanding at any time, notice of non-payment or failure to perform on the
part of the Company, and all other notices or demands of any other kind; and
C). The Employee shall not be required to make demand on or file suit or take
any action against the Company with intent to collect payment or enforce
performance of any Obligation or to exercise or exhaust any other right or
remedy to which the Employee may be entitled prior to enforcing its rights
hereunder against GRI.
7. Term
This Agreement shall terminate and be at an end on the date (the "End Date")
eight (8) months from the date of the first Change of Control occurring after
the date of this Agreement except for obligations arising from a Termination
occurring prior to the End Date (including, without limitation, GRI's
obligations under section7 hereof relating to obligations arising from such
Termination), which obligations will survive and remain in effect until
satisfied and discharged in full.
8. Termination for Cause
Nothing herein contained shall be interpreted as preventing the Company from
terminating the employment of the Employee for cause. In the event of
termination for cause the provisions of this Agreement shall not apply and
shall no longer be applicable.
9. Other Benefits
Upon termination of the employment of the Employee for any reason, the rights
of the Employee to any other benefits not specifically addressed herein shall
be governed and determined in accordance with the terms of all applicable
benefit and option plans.
10. Miscellaneous
This Agreement may not be changed orally, but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification' extension or discharge is sought. The waiver by either party of
compliance with the provisions of this Agreement by the other party shall not
operate or be construed as a waiver of any subsequent breach by such party.
11. Binding Agreement
This Agreement shall be binding upon and enure to the benefit of the parties
hereto, the respective successors of the Company and GRI (including any
successors to the business of the Company or GRI), the Employee's heirs and
the personal representatives of the Employee's estate.
12. Severability: Governing Law
If any clause or provision herein shall be adjudged invalid or unenforceable
by a court of competent jurisdiction or by operation of any applicable law,
it shall not affect the validity of any other clause or provision, which
shall remain in full force and effect. The laws of the state of Washington
shall govern this Agreement.
13. Arbitration
Any dispute arising out of or in connection with this Agreement shall be
settled by binding arbitration in the manner set forth herein. The
arbitration decision is final as well as binding.
(A) The party demanding arbitration shall give the other party or parties
from whom it seeks relief a written notice (the "Notice") which shall
contain, in addition to the demand for arbitration, a clear statement of the
issue(s) to be resolved by arbitration with a reference to the provision of
this Agreement under which the dispute arises, the relief requested through
arbitration, and the name and address of the arbitrator selected by the
demanding party. Notice of demand for arbitration shall be given within two
years after the issue has arisen.
(B) The party receiving the Notice shall provide a written response (the
"Response") to the Notice within thirty (30) days following receipt of
Notice. The Response shall contain a clear statement of the responding
party's position concerning the issue in dispute. The responding party shall
also identify the name and address of the arbitrator selected by the
responding party.
(C) The arbitrators selected by each of the parties shall then select a third
arbitrator, which shall constitute the three (3) person arbitration panel. The
arbitration panel shall meet in Spokane, Washington and shall allow each party
the opportunity to submit oral and written evidence and argument concerning
the dispute. The decision of the majority of the arbitration panel, who shall
render their decision within sixty (60) days of appointment of the final
arbitrator, shall be binding upon the parties. The arbitration panel shall
resolve the matters before them in accordance with the rules of law and
equity. The arbitration panel may only resolve the question or questions
submitted to them. In all other respects, the arbitration shall be conducted
in accordance with the Washington Arbitration Act, RCW 7.04.
(D) If any dispute arises in connection with this Agreement, the Company
agrees to pay all costs and expenses associated with resolving the dispute
including, but not necessarily limited to, the costs of arbitrators, witness
fees and reasonable attorneys fees. At the conclusion of the arbitration, any
party may apply to the Spokane County Superior Court for an order confirming
the arbitration award.
(E) Any proceeding in a court of law shall be immediately stayed upon receipt
of a notice or demand for arbitration; provided that this shall not preclude
any party from applying to any court of competent jurisdiction for equitable
relief in the form of injunctions and temporary restraining orders. In any
such action or proceeding to obtain injunctive relief and/or to compel
arbitration or confirm the arbitration award, the Company will pay the costs
associated therewith including reasonable attorneys fees and including such
costs and expenses incurred in any appellate proceedings.
14. Further Assurances
Each of the parties shall from time to time and at all times do all such
further acts and execute and deliver all such further deeds and documents as
shall be reasonably required in order to fully perform the terms of this
Agreement.
15. Complete Agreement
Except as otherwise noted herein, this contract supersedes all prior
contracts and understandings between the parties hereto relating to the
subject matter addressed herein and may not be modified, changed or altered
by any promise or statement by whomsoever made; nor shall any modification of
it be binding upon the Company until such written modification shall have been
approved in writing by an officer of the Company.
16. Notice
Any notice or other instrument which may be required or permitted to be
delivered or served on the other party hereto shall be sufficiently given to
or served on such party if in writing and delivered by hand in a sealed
envelope addressed to such party and left, during normal business hours, at
the following addresses:
(a) if to the Company: Gold Reserve Corporation
926 West Sprague Avenue, Suite 200
Spokane, WA 99201 USA
(b) if to the Employee: "Executive"
Home Address
City, State Zip
(c) if to GRI: Gold Reserve Inc.
926 West Sprague Avenue, Suite 200
Spokane, WA 99201 USA
Any of the Company, the Employee or GRI may, by notice delivered in
accordance with this section, change the address for notices set out above.
Executed and delivered. GOLD RESERVE CORPORATION
Per: ------------------------
------------------------------
Witness "Executive"
GOLD RESERVE INC.
Per: ------------------------
Exhibit 10.0 Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (File No. 033-61113 and No. 333-56495) of Gold
Reserve Inc. of our report dated February 14, 2003 relating to the financial
statements, which appears in this Form 20-F.
s/ PricewaterhouseCoopers LLP
Vancouver, B.C.
May 15, 2003
Exhibit 10.1 Consent of Behre Dolbear & Company, Inc.
Behre Dolbear & Company, Inc. does hereby consent to the reference to this
firm in the Annual Report on Form 20F of Gold Reserve, Inc. filed with the
Securities and Exchange Commission on or about May 15, 2003. We also consent
to the incorporation by reference in the Registration Statements on Forms S-8
(File No. 033-61113 and No. 333-56495) of Gold Reserve Inc., the reference to
this firm, which appears in this Form 20-F. In giving this consent, we do not
thereby admit that we are an "expert" within the meaning of the Securities Act
of 1933, as amended.
/s/ BEHRE DOLBEAR & COMPANY, INC.
May 15, 2003
Exhibit 99.0 Chief Executive Officers Section 906 Certification
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Gold Reserve Inc. on Form 20-F for
the year ending December 31, 2002 as filed with the Securities and Exchange
Commission on the date hereof, I, Rockne J. Timm, President & CEO of Gold
Reserve Inc., certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Annual Report on 20-F fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Annual Report on Form 20-F fairly
presents, in all material respects, the financial condition and result of
operations of Gold Reserve Inc.
/s/ Rockne J. Timm
Rockne J. Timm
President & CEO
May 15, 2003
Exhibit 99.1 Chief Financial Officers Section 906 Certification
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Gold Reserve Inc. on Form 20-F for
the year ending December 31, 2002 as filed with the Securities and Exchange
Commission on the date hereof, I, Robert A. McGuinness, Vice
President-Finance & CFO of Gold Reserve Inc., certify, pursuant to 18
U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Annual Report on 20-F fully complies with the requirements of
section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Annual Report on Form 20-F fairly
presents, in all material respects, the financial condition and result of
operations of Gold Reserve Inc.
/s/ Robert A. McGuinness
Robert A. McGuinness
Vice President-Finance & CFO
May 15, 2003
Chief Executive Officers Certification
I, Rockne J. Timm, certify that:
1. I have reviewed this annual report on Form 20-F of Gold Reserve Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's Board of Directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003 s/ Rockne J Timm
Rockne J. Timm, President & CEO
Chief Financial Officers Certification
I, Robert A. McGuinness, certify that:
1. I have reviewed this annual report on Form 20-F of Gold Reserve Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's Board of Directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003 s/ Robert A. McGuinness
Robert A. McGuinness,
Vice President-Finance & CFO